M/s Metrochem API Pvt. Ltd., Hyderabad V. ACIT, Circle-16(2), Hyderabad

ITA 62/HYD/2012

• Counselvise Citation: 6222514 RSA 2012
• Duration Of Justice: 3 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 21-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 20-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Section: 143(3); 80IB; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI P. M. JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.62/HYD/2012 ASSESSMENT YEAR 2008-2009 M/S. METROCHEM API PVT. LTD., HYDERABAD. PAN AADCM2691M VS. ACIT, CIRCLE 16(2) HYDERABAD (APPELLANT) (RESPONDENT) ITA.NO.1080 & 273/HYD/2013 ASSESSMENT YEARS 2007-2008 & 2009-2010 DCIT, CIRCLE 16(2) HYDERABAD VS. M/S. METROCHEM API PVT. LTD., HYDERABAD. PAN AADCM2691M (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. SAMUEL NAGADESI FOR REVENUE : MR. RAMAKRISHNA BANDI DATE OF HEARING : 21.04.2015 DATE OF PRONOUNCEMENT : 24.04.2015 ORDER PER P.M. JAGTAP, A.M. OUT OF THESE THREE APPEALS, TWO APPEALS BEING ITA.NO.273/HYD/2013 AND ITA.NO.1080/HYD/2013 ARE TH E APPEALS OF THE REVENUE WHICH ARE DIRECTED AGAINST T HE ORDERS OF THE LD. CIT(A)-V, HYDERABAD DATED 30.11.2012 AND 17 .04.2013 FOR A.YS. 2009-2010 AND 2007-2008 RESPECTIVELY, WHI LE THE THIRD APPEAL BEING ITA.NO.62/HYD/2012 IS THE APPEAL OF THE ASSESSEE WHICH IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-V, HYDERABAD DATED 15.11.2011 FOR A.Y. 2008-09. SINCE COMMON ISSUE IS INVOLVED IN ALL THESE APPEALS, THE SAME HA VE BEEN 2 ITA.NO.62/H/2012, 273 & 1080/HYD/2013 M/S. METROCHEM API P. LTD., HYDERABAD. HEARD TOGETHER AND ARE BEING DISPOSED OF BY A SINGL E COMPOSITE ORDER FOR THE SAKE OF CONVENIENCE. THE SOLITARY COM MON ISSUE INVOLVED IN THESE THREE APPEALS RELATES TO THE ASSE SSEES CLAIM OF DEDUCTION UNDER SECTION 80IB OF THE ACT. 2. THE RELEVANT FACTS OF THE CASE GIVING RISE TO T HESE APPEALS ARE AS FOLLOWS. THE ASSESSEE IS A COMPANY W HICH IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF BULK DRUG S AND INTERMEDIARIES. THE RETURN OF INCOME FOR A.Y. 2008- 2009 WAS FILED BY IT ON 27.09.2008 DECLARING TOTAL INCOME OF RS.2,57,83,609 AFTER CLAIMING DEDUCTION OF RS.1,10, 50,118 UNDER SECTION 80IB. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE CLAIM OF THE ASSESSEE FOR DEDUCTIO N UNDER SECTION 80IB WAS EXAMINED BY THE A.O. AND ON SUCH EXAMINATION, HE FOUND THAT THE VALUE OF PLANT AND M ACHINERY OF THE ASSESSEE COMPANY HAVING BEEN EXCEEDED TO RS. 5 CRORES, IT WAS NOT A SSI (SMALL SCALE INDUSTRIAL) UNIT ELIG IBLE FOR CLAIMING DEDUCTION UNDER SECTION 80IB. IN THIS REGA RD, HE RELIED ON NOTIFICATION NO.S.O.2(E) DATED 01.01.1993 WHEREIN THE METHOD OF CALCULATING THE VALUE OF PLANT AND MA CHINERY WAS PRESCRIBED AS UNDER : IN CALCULATING THE VALUE OF PLANT AND MACHINERY FO R THE PURPOSES OF THIS NOTIFICATION, THE ORIGINAL PRICE T HERE OF IRRESPECTIVE OF WHETHER THE PLANT AND MACHINERY ARE NEW OF SECOND HAND SHALL BE TAKEN INTO ACCOUNT. IN CALCULATING THE VALUE OF PLANT AND MACHINERY, TH E FOLLOWING SHALL BE EXCLUDED, NAMELY :- I. THE COST OF EQUIPMENTS SUCH AS TOOLS, JIGS, DIES, MOULDS AND SPARE PARTS FOR MAINTENANCE AND THE COST OF CONSUMABLE STORES. II. THE COST OF INSTALLATION OF PLANT &: MACHINERY. III. THE COST OF RESEARCH AND DEVELOPMENT (R &: D) 3 ITA.NO.62/H/2012, 273 & 1080/HYD/2013 M/S. METROCHEM API P. LTD., HYDERABAD. EQUIPMENT AND POLLUTION CONTROL EQUIPMENT. IV. THE COST OF GENERATION SETS, EXTRA TRANSFORMER, ETC ., INSTALLED BY THE UNDERTAKING AS PER THE REGULATIONS OF THE STATE ELECTRICITY BOARD. V. THE BANK CHARGE AND SERVICE CHARGE PAID TO THE NATIONAL SMALL INDUSTRIES CORPORATION OR THE STATE SMALL INDUSTRIES CORPORATION. VI. THE COST INVOLVED IN PROCUREMENT OR INSTALLATION OF CABLES, WIRING, BUS BARS, ELECTRICAL CONTROL PANELS (NOT THOSE MOUNTED ON INDIVIDUAL MACHINES), OIL CIRCUIT BREAKERS/ MINIATURE CIRCUIT BREAKERS ETC., WHICH ARE NECESSARILY TO BE USED FOR PROVIDING ELECTRICAL POWER TO THE PLANT AND MACHINERY/ SAFETY MEASURES. VII. THE COST OF GAS PRODUCER PLANT. VIII. TRANSPORTATION CHARGES (EXCLUDING OF TAXES E.G. SALES TAX, EXCISE ETC.) FOR INDIGENOUS MACHINERY FROM THE PLACE OF MANUFACTURING TO THE SITE OF THE FACTORY. IX. CHARGES PAID FOR TECHNICAL KNOW-HOW FOR ERECTION OF PLANT AND MACHINERY. X. COST OF CUSH STORAGE TANKS WHICH STORE RAW- MATERIALS FINISHED PRODUCTS ONLY AND ARE NOT LINKED WITH THE MANUFACTURING PROCESS; AND XI. COST OF FIRE FIGHTING EQUIPMENT. IN THE CASE OF IMPORTED MACHINERY, THE FOLLOWING SH ALL BE INCLUDED IN CALCULATING THE VALUE, NAMELY:- I. IMPORTANT DUTY (EXCLUDING MISCELLANEOUS EXPENSES AS TRANSPORTATION FROM T HE PORT TO THE SITE OF THE FACTORY, DEMURRAGE PAID AT THE PORT): II. THE SHIPPING CHARGES; III. CUSTOMS CLEARANCE CHARGES; AND IV. SALES TAX 4 ITA.NO.62/H/2012, 273 & 1080/HYD/2013 M/S. METROCHEM API P. LTD., HYDERABAD. 2.1. IN THE LIGHT OF THE ABOVE NOTIFICATION AS WEL L AS THE RELEVANT PROVISIONS OF LAW, THE A.O. DID NOT ACCEPT THE CLASSIFICATION MADE BY THE ASSESSEE OF PLANT AND MA CHINERY IN TWO CLASSES NAMELY CORE MACHINERY AND OTHER ASSE TS. HE ALSO FOUND ON VERIFICATION OF THE RELEVANT DETAILS THAT SOME EQUIPMENT WERE SHOWN BY THE ASSESSEE UNDER THE HEAD R & D EQUIPMENT BUT THERE WAS NO PROOF OF ANY R & D ACTI VITY PERFORMED BY THE ASSESSEE. HE ALSO NOTED THAT THE A SSESSEE COMPANY DID NOT HAVE ANY CERTIFICATION FROM DSIR TO SUPPORT ITS CLAIM OF R & D ACTIVITY. HE FOUND THAT ALL THE EQUIPMENTS CLASSIFIED BY THE ASSESSEE COMPANY AS R & D EQUIPME NT WERE ACTUALLY QUALITY CONTROL EQUIPMENTS AND EVEN THE EQ UIPMENT SHOWN UNDER THE HEAD GAS EQUIPMENT CONSISTED OF C OOLING AND REFRIGERATION DEVICES, AIR COMPRESSORS, VENTILA TORS ETC., HE FURTHER NOTED THAT THE ITEMS SHOWN BY THE ASSESSEE COMPANY UNDER THE HEAD ELECTRICAL EQUIPMENT WERE CONSISTI NG OF ELECTRICAL MOTORS, PUMP SETS, GEAR BOXES, DRILLING MACHINES, VACUUM PUMPS, SPLIT AIR-CONDITIONERS ETC. HE HELD T HAT ALL THESE ITEMS THUS WERE NOT LIABLE TO BE REDUCED TO C OMPUTE THE VALUE OF PLANT AND MACHINERY OF THE ASSESSEE COMPAN Y AS PER NOTIFICATION NO.S.O.2(E) DATED 01.01.1993 AND THE CLASSIFICATION OF MACHINERY RESORTED BY THE ASSESSE E COMPANY WAS TO CAMAFLOUGE THE FACT THAT VALUE OF PLANT AND MACHINERY HAD EXCEEDED TO RS. 5 CRORES WHICH WAS THE UPPER LI MIT FOR THE UNITS TO BE ELIGIBLE AS SMALL SCALE INDUSTRY. ACCOR DINGLY, HE COMPUTED THE VALUE OF PLANT AND MACHINERY OF THE AS SESSEE COMPANY AT RS.6,93,52,414 AS PER NOTIFICATION NO.S. O.2(E) DATED 01.01.1993 AND DISALLOWED THE CLAIM OF THE AS SESSEE FOR DEDUCTION UNDER SECTION 80IB AMOUNTING TO RS.1,10,5 0,118 IN THE ASSESSMENT COMPLETED FOR A.Y. 2008-2009 UNDER S ECTION 143(3) OF THE ACT VIDE ORDER DATED 31.12.2010. 5 ITA.NO.62/H/2012, 273 & 1080/HYD/2013 M/S. METROCHEM API P. LTD., HYDERABAD. 3. FOR A.Y. 2009-2010, THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 28.09.2009 DECLARING TOTAL INCO ME OF RS.7,05,77,433 AFTER CLAIMING DEDUCTION OF RS.3,03, 11,757 UNDER SECTION 80IB OF THE ACT. IN THE ASSESSMENT CO MPLETED UNDER SECTION 143(3) VIDE ORDER DATED 27.12.2011, T HE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 80IB FOR A .Y. 2009- 2010 WAS ALSO DISALLOWED BY THE A.O. ON THE SAME GR OUNDS AS ADOPTED IN A.Y. 2008-2009 AFTER RE-COMPUTING THE VA LUE OF PLANT AND MACHINERY OF THE ASSESSEE AT RS.8,20,19,3 57. IN THE RETURN OF INCOME FILED FOR A.Y. 2007-2008, THE CLAI M MADE BY THE ASSESSEE FOR DEDUCTION UNDER SECTION 80IB AMOUN TING TO RS.64,17,798 WAS ORIGINALLY ALLOWED BY THE A.O. UND ER SECTION 143(1) OF THE ACT. ON THE BASIS OF THE ASSESSMENTS COMPLETED UNDER SECTION 143(3) FOR A.YS. 2008-2009 AND 2009-2 010, THE ASSESSMENT FOR A.Y. 2007-2008 WAS REOPENED BY THE A .O. AND IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) RE AD WITH SECTION 147 OF THE ACT VIDE ORDER DATED 31.10.2012, THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 80IB FO R A.Y. 2007- 2008 WAS ALSO DISALLOWED BY THE A.O. ON THE SAME GR OUNDS AS GIVEN IN A.YS. 2008-2009 AND 2009-2010 AFTER RE-COM PUTING THE VALUE OF PLANT AND MACHINERY OF THE ASSESSEE CO MPANY AT RS.5,15,67,330. 4. AGAINST THE ORDERS PASSED BY THE A.O. FOR ALL T HE THREE YEARS UNDER CONSIDERATION I.E., A.YS. 2007-20 08, 2008- 2009 AND 2009-2010, APPEALS WERE PREFERRED BY THE A SSESSEE BEFORE THE LD. CIT(A) DISPUTING THE DISALLOWANCE MA DE BY THE A.O. ON ACCOUNT OF ITS CLAIM FOR DEDUCTION UNDER SE CTION 80IB. THE APPEAL OF THE ASSESSEE FOR A.Y. 2008-2009 CAME TO BE DISPOSED OF BY THE LD. CIT(A) FIRST VIDE HIS ORDER DATED 15.11.2011 WHEREBY HE CONFIRMED THE DISALLOWANCE MA DE BY 6 ITA.NO.62/H/2012, 273 & 1080/HYD/2013 M/S. METROCHEM API P. LTD., HYDERABAD. THE A.O. ON ACCOUNT OF DEDUCTION UNDER SECTION 80IB FOR THE SAME REASONS AS GIVEN BY THE A.O. IN THE ASSESSMENT ORDER. THEREAFTER, THE APPEALS FILED BY THE ASSESSEE FOR A .YS. 2009- 2010 AND 2007-2008 WERE DISPOSED OF BY THE LD. CIT( A) VIDE HIS ORDER DATED 30.11.2012 AND 17.04.2013 RESPECTIV ELY WHEREBY HE ALLOWED THE CLAIM OF THE ASSESSEE FOR DE DUCTION UNDER SECTION 80IB WITHOUT TAKING NOTE OF THE FACT THAT SIMILAR ISSUE INVOLVED IN THE CASE OF THE ASSESSEE FOR A.Y. 2008-2009 WAS ALREADY DECIDED BY HIS PREDECESSOR AGAINST THE ASSESSEE. THE REASONS GIVEN BY THE LD. CIT(A) FOR ALLOWING TH E CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 80IB FOR A .YS. 2009- 2010 AND 2007-2008 ARE EXTRACTED BELOW : 6. THE DETAILED WRITTEN SUBMISSIONS, EVIDENCES FIL ED THEREON, RELIANCE PLACED BY THE APPELLANT ARE CONSIDERED. AFTER GOING THROUGH THE SAME, I AM INCLINED TO ACCEPT THE SUBMISSIONS OF THE ASSESSEE FOR THE FOLLOWING REASONS. 6.1. THE BASIC RELIANCE PLACED BY THE ASSESSING OFF ICER FOR REJECTING THE CLAIM OF DEDUCTION UNDER SECTION 8018 OF THE ACT IS THAT THE VALUE OF PLANT AND MACHINERY INVESTED BY THE APPELLANT EXCEEDED RS.5 CRORES, AND PRECISELY IT IS VALUED AT RS.820.17 LAK HS AGAINST THE VALUE OF RS.430.69 LAKHS ARRIVED AT BY THE APPELLANT. AS CLAIMED BY THE APPELLANT IN ITS WRITTEN SUBMISSIONS, IN PARAS 3.3 TO 3.6 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS GLOSSED OVER THE VERY EXCEPTIONS PROVIDED IN THE ID R ACT IN VALUING THE PLANT AND MACHINERY AS WELL AS THE METHOD OF VALUATION OF PLANT AND MACHINERY ADOPTED BY THE APPELLANT. GOING BY THE BILLS AND VOUCHERS PRODUCED EVIDENCING THE ADDITIONS TO FIXED ASSETS AND THE CLASSIFICATION OF PLANT AND MACHINERY, I FIND THAT THE CLAUSE-WISE CLASSIFICATI ON OF ASSETS SUBMITTED BY THE APPELLANT FITS INTO THE CLAUSE-WISE EXCEPTIONS PROVIDED IN THE NOTIFICATION NO.2(E), DATED 01.01.1993 RELIED UPON BY THE ASSESSING OFFICER. EXCEPT GOING BY THE NAME OF THE ASSETS AND THEIR APPARENT USE, THE ASSESSING OFFICER HAD NOT BROUGHT ON RECORD ANY FACTUAL 7 ITA.NO.62/H/2012, 273 & 1080/HYD/2013 M/S. METROCHEM API P. LTD., HYDERABAD. FINDING THAT THE CLASSIFICATION OF THE ASSETS MADE BY THE APPELLANT IS CONTRARY TO THE RULES EXTANT UNDER THE IDR ACT OR THE INCOME TAX ACT, 1961. THE ASSESSING OFFICER HAD NOT TAKEN NOTE OF THE SUBMISSION OF THE APPELLANT THAT FOR THE LIMITED PURPOSE OF SHOWING THAT THE INVESTMENT MADE BY IT IS BELOW RS.5 CRORES AS PER IDR ACT, THE APPELLANT HAD CLASSIFIED THE ASSETS INTO TWO CATEGORIES, ONE AS CORE MACHINERY AND THE BALANCE ASSETS AS OTHER ASSETS, KEEPING THE VERY EXCEPTIONS PROVIDED IN THE IDR ACT. FOR THE PURPOSE OF CALCULATING DEPRECIATIO N THE TOTAL PLANT AND MACHINERY, ANY WAY, WAS CLUBBED AND SHOWN UNDER THE SINGLE BLOCK OF ASSETS AS PER INCOME TAX ACT, 1961 BY THE APPELLANT. 6.2. APART FROM THE ABOVE, THE SUBMISSIONS OF THE APPELLANT MADE ON LEGAL FRONT ALSO CONVINCED ME THAT THE APPELLANT IS ENTITLED FOR DEDUCTION UNDER SECTION 8018 OF THE ACT. AS PER CLAUSE (G) TO SUB- SECTION (14) OF SECTION 80IB, SMALL-SCALE INDUSTRIA L UNDERTAKING' MEANS AN INDUSTRIAL UNDERTAKING WHICH IS, AS ON THE LAST DAY OF THE PREVIOUS YEAR, REGARDED AS A SMALL-SCALE INDUSTRIAL UNDERTAKING UNDER SECTION 11B OF THE INDUSTRIES (DEVELOPMENT AND REGULATION) ACT, 1951. THE APPELLANT WAS PERMANENTLY REGISTERED WITH DIC, RANGA REDDY AS SSI UNIT AND THIS REGISTRATION CANNOT BE DISREGARDE D IN TOTO. 6.3. WHILE CLAIMING THAT THEIR UNIT IS A SSI UNIT A ND THUS ELIGIBLE FOR DEDUCTION UNDER SECTION 80LB OF THE ACT, WITH REGARD TO THE ISSUE OF LIMIT OF INVESTMENT IN PLANT AND MACHINERY, APART FROM THE FACTUAL SUBMISSIONS, THE ASSESSEE BROUGHT OUT SOME FACTS AND BACKGROUND RELATING TO THIS ISSUE. FROM THE FACTS SUBMITTED BY THE APPELLANT, IT TRANSPIRES THA T THE INVESTMENT LIMIT IMPOSED UPON THE DEFINITION OF SSI UNIT HAS BEEN HISTORICALLY A PERMANENT-VARIANT. THE FOLLOWING TABLE SHOWS THE EVOLUTION OF THE DEFINITION OF THE SMALL SCALE INDUSTRIAL UNITS AS P ER SECTION 11B OF THE IDR ACT: 8 ITA.NO.62/H/2012, 273 & 1080/HYD/2013 M/S. METROCHEM API P. LTD., HYDERABAD. YEAR SMALL SCALE INDUSTRIES ANCILLARY INDUSTRIES 1955 UPTO RS. 5 LACS IN FIXED ASSETS AND EMPLOYMENT LESS THAN 50/100 WORKERS WITH/WITHOUT POWER. --- 1960 UPTO RS. 5 LACS IN FIXED ASSETS --- 1966 UPTO RS.7.5 LACS IN PLANT AND MACHINERY UPTO RS.10 LACS IN PLANT AND MACHINERY 1975 UPTO RS.7.5 LACS IN PLANT AND MACHINERY UPTO RS.15 LACS IN PLANT AND MACHINERY 1980 RS. 20 LACS RS.25 LACS 1985 RS. 35 LACS RS.45 LACS 1991 RS. 60 LACS RS.75 LACS 1997 RS.300 LACS RS.300 LACS 1999 RS.100 LACS RS.100 LACS 6.4. THE APPELLANT WAS FIRST RECOGNIZED AS A PERMANENT SSI UNIT IN THE YEAR 1992 AND AT THE TIME OF RECOGNITION THE INVESTMENT LIMIT WAS RS. 60 LAKHS. THEREAFTER, IT WAS INCREASED TO RS. 3 CRORES IN THE YEAR 1997 AND LATER IN THE YEAR 1999 IT WAS REDUCED BACK TO RS. 1 CRORE AND CLARIFICATIONS WERE GIVEN BY THE MINISTRY CONCERNED THAT WHERE THE UNITS HAVE TAKEN STEPS FOR IMPLEMENTATION OF THEIR PROJECT AND INVESTMENT EXCEEDED RS.1 CRORE IN THE YEARS 1997 AND 1998, THEY SHOULD CONTINUE TO BE REGARDED AS SSI UNITS. IT IS ONLY AFTER FORMATION OF A NEW AGENCY BY NAME MICRO, SMALL AND MEDIUM ENTERPRISES, UNDER THE MINISTRY OF INDUSTRIES, IN THE YEAR 2006 THE INVESTMENT LIMIT WAS FIXED AT RS.5 CRORES. 6.5. IT IS THE SUBMISSION OF THE APPELLANT THAT OVE R THE YEARS, THEY ARE RUNNING THEIR UNIT ADHERING TO THE NORMS FIXED BY THE GOVERNMENT FROM TIME TO TIME AND, IN ANY CASE, WHEN ALL THE CONDITIONS STIPULATED FOR SSI UNITS ARE BEING FOLLOWED BY THEM AND RECOGNIZED AS SSI UNIT BY THE PRESCRIBED AUTHORITY, THEY CANNOT BE DISALLOWED THE DEDUCTION UNDER SECTION 80IB OF THE ACT. 6.6. CONSIDERING ALL THE FOREGOING FACTS AND CIRCUMSTANCES, I AM INCLINED TO ACCEPT THE 9 ITA.NO.62/H/2012, 273 & 1080/HYD/2013 M/S. METROCHEM API P. LTD., HYDERABAD. SUBMISSIONS OF THE ASSESSEE, BOTH FACTUALLY AND LEGALLY, AND DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION CLAIM MADE BY THE ASSESSEE UNDER SECTION 80IB OF THE ACT AMOUNTING TO RS. 3,01,11,757/-. 5. THE DISALLOWANCE MADE BY THE A.O. UNDER SECTION 80IB THUS WAS CONFIRMED BY THE LD. CIT(A) IN A.Y. 2 008-2009 WHILE THE SAME WAS DELETED BY THE LD. CIT(A) IN A.Y S. 2009- 2010 AND 2007-2008. AGGRIEVED BY THE ORDER OF THE L D. CIT(A) FOR A.Y. 2008-2009, ASSESSEE IS IN APPEAL BEFORE TH E TRIBUNAL WHILE THE REVENUE HAS CHALLENGED THE RELIEF ALLOWED BY THE LD. CIT(A) TO THE ASSESSEE IN A.YS. 2009-2010 AND 2007- 2008 IN THE PRESENT APPEALS FILED BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. I T IS OBSERVED THAT THE COMMON ISSUE INVOLVED IN THE PRESENT APPEA LS IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAI NST THE REVENUE BY THE DECISION OF HONBLE KARNATAKA HIGH C OURT IN THE CASE OF M/S. ACE MULTI AXES SYSTEMS LTD., VS. D CIT, CIRCLE 11(1), BANGALORE (2014) 367 ITR 266 CITED BY THE LD . COUNSEL FOR THE ASSESSEE. IN THE SAID CASE, SIMILAR ISSUE W AS INVOLVED IN IDENTICAL FACTS AND CIRCUMSTANCES AND THE SAME WAS DECIDED BY THE HONBLE KARNATAKA HIGH COURT IN FAVOUR OF TH E ASSESSEE AFTER RECORDING THE FOLLOWING OBSERVATIONS : 4. [SEC.80IB IS AN INCENTIVE PR OVISION. IT PROVIDES DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM CERTAIN INDUSTRIAL UNDERTAKINGS OTHER THAN INFRASTRUCTURE DEVELOPMENT UNDERTAKINGS. FOR AT! INDUSTRIAL UNDERTAKING TO BE ELIGIBLE FOR THE SAID DEDUCTION, IT HAS TO FULFILL ALL THE CONDITIONS MENTIONED UNDER SUB-SEC.(2) OF SEC.80IB. THE FOUR CONDITIONS WHICH. ARE STIPULATED THEREIN ARE, FIRSTLY, THE INDUSTRIAL UNDERTAKING MUST NOT HAVE BEEN FORMED BY 10 ITA.NO.62/H/2012, 273 & 1080/HYD/2013 M/S. METROCHEM API P. LTD., HYDERABAD. SPLITTING UP OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE THE SECOND CONDITION IS, SUCH AN UNDERTAKING IS NOT FORMED BY TRANSFER OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. THE THIRD CONDITION IS THAT THE INDUSTRIAL UNDERTAKING MANUFACTURES OR PRODUCES ANY ARTICLE OR THING NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE LIST IN ELEVENTH SCHEDULE. HOWEVER, IN RESPECT OF A SMALL SCALE INDUSTRY UNDERTAKING, EVEN THAT CONDITION IS WAIVED. IN OTHER WORDS, A SMALL SCALE INDUSTRY MANUFACTURING OR PRODUCING ANY ARTICLE OR THING SPECIFIED IN THE LIST IN THE ELEVENTH SCHEDULE, IS ALSO ENTITLED TO THE AFORESAID DEDUCTION. THE FOURTH CONDITION IS, THE SAID INDUSTRIAL UNDERTAKING EMPLOYS 10 OR MORE WORKERS IN A MANUFACTURING PROCESS CARRIED OR: WITH THE AID OF POWER OR EMPLOYS 20 OR MORE WORKER IN A MANUFACTURING PROCESS CARRIED ON WITHOUT THE AID OF POWER ONCE THESE FOUR CONDITIONS ARE FULFILLED, THE ASSESSEE IS ENTITLED TO THE BENEFIT UNDER SEC.80IB OF THE ACT. SUB- SEC.(3) OF SEC.80IB PROVIDES THE EXTENT OF DEDUCTION ELIGIBLE UNDER SEC.80IB AND ALSO THE NUMBER OF YEARS SUCH A DEDUCTION IS AVAILABLE TO SUCH AN UNDERTAKING. SUB-SEC.(3) MANDATES THAT THE INDUSTRIAL UNDERTAKING SHALL BE ELIGIBLE FOR THE SAID DEDUCTION FOR A PERIOD OF 10 CONSECUTIVE YEARS, BEGINNING WITH THE INITIAL ASSESSMENT YEAR. HOWEVER, IT IS SUBJECT TO TWO CONDITIONS AS STIPULATED THEREIN. THE SECOND CONDITION IS WHAT IS APPLICABLE TO THE CASE ON HAND WHICH PROVIDES, IF THE INDUSTRIAL UNDERTAKING IS A SMALL SCALE INDUSTRY UNDERTAKING, IT HAS TO BEGIN MANUFACTURE OR PRODUCE ARTICLES OR THINGS AT ANY TIME DURING THE PERIOD BEGINNING ON THE 1 ST DAY OF APRIL 1995 AND END ON THE 31 ST DAY OF MARCH 2002. THIS IS A CONDITION WHICH A SMALL SCALE INDUSTRY HAS TO FULFIL IN ADDITION TO THE CONDITIONS MENTIONED IN SUB-SEC. (2) OF SEC.80IB. ONCE ALL THESE CONDITIONS ARE FULFILLED, A SMALL SCALE INDUS TRY IS ENTITLED TO THE BENEFIT OF DEDUCTION FOR A PERIOD OF 10 CONSECUTIVE YEARS BEGINNING WITH THE INITIAL ASSESSMENT YEAR. 11 ITA.NO.62/H/2012, 273 & 1080/HYD/2013 M/S. METROCHEM API P. LTD., HYDERABAD. 5. IN THE ENTIRE PROVISION, THERE IS NO INDICATION THAT THESE CONDITIONS HAD TO BE FULFILLED BY THE ASSESSEE ALL THE 10 YEARS. WHEN ONCE THE BENEFIT OF 10 YEARS, COMMENCING FROM THE INITIAL YEAR, IS GRANTED, IF THE UNDERTAKING SATISFY ALL THESE CONDITIONS INITIALLY, THE UNDERTAKING IS ENTITLED TO THE BENEFIT OF 10 CONSECUTIVE YEARS. THE ARGUMENT THAT, IN THE COURSE OF 10 YEARS, IF THE GROWTH OF THE INDUSTRY IS FAST AND IT ACQUIRES MACHINERY AND THE TOTAL VALUE OF THE MACHINERY EXCEEDS RS.1 CRORE, IT CEASES TO HAVE THE SAID BENEFIT, DO NOT FOLLOW FROM ANY OF THE PROVISIONS. IT IS TRUE THAT THERE IS NO EXPRESS PROVISION INDICATING EITHER WAY, WHAT WOULD BE THE POSITION IF THE SMALL SCALE INDUSTRY CEASES TO BE A SMALL SCALE INDUSTRY DURING THE SAID PERIOD OF 10 YEARS. BECAUSE OF THAT AMBIGUITY, A NEED FOR INTERPRETATION ARISES. IF WE KEEP IN MIND THE OBJECT OF THE LEGISLATURE PROVIDING FOR THESE INCENTIVES AND WHEN A PERIOD OF 10 YEARS IS PRESCRIBED, THAT IS THE PERIOD, PROBABLY, WHICH IF; REQUIRED FOR ANY INDUSTRY TO STABILIZE ITSELF. DURING THAT PERIOD THE INDUSTRY NOT ONLY MANUFACTURES PRODUCTS, IT GENERATES EMPLOYMENT AND IT ADDS TO THE WEALTH OF THE COUNTRY. MERELY BECAUSE AN INDUSTRY STABILIZES EARLY, MAKES PROFITS, MAKES FUTURE INVESTMENT IN THE SAID BUSINESS, AND IT GOES OUT OF THE DEFINITION OF THE SMALL SCALE INDUSTRY, THE BENEFIT UNDER SEC.80IB CANNOT BE DENIED. IF SUCH A LITERAL INTERPRETATION IS PLACED ON THE SAID PROVISION, IT WOULD RUN COUNTER TO THE VERY OBJECT OF GRANTING INCENTIVES. IT WOULD KILL THE INDUSTRY. THEREFORE KEEPING IN MIND THE OBJECT WITH WHICH THESE PROVISIONS ARE ENACTED, KEEPING IN MIND THE INDUSTRIAL GROWTH WHICH IS REQUIRED TO BE ACHIEVED, IF TWO INTERPRETATIONS ARE POSSIBLE, THE COURTS HAVE TO LEAN IN FAVOUR OF EXTENDING THE BENEFIT OF DEDUCTION TO AN ASSESSEE WHO HAS AVAILED THE OPPORTUNITY GIVEN TO HIM UNDER LAW AND HAS GROWN IN HIS BUSINESS. THEREFORE WE ARE OF THE VIEW, IF A SMALL SCALE INDUSTRY, IN THE COURSE OF 10 YEARS, STABILIZES EARLY, MAKES FURTHER INVESTMENTS IN THE BUSINESS AND IT RESULTS IN IT'S GOING OUTSIDE 12 ITA.NO.62/H/2012, 273 & 1080/HYD/2013 M/S. METROCHEM API P. LTD., HYDERABAD. THE PURVIEW OF THE DEFINITION OF A SMALL SCALE INDUSTRY, THAT SHOULD NOT COME IN THE WAY OF ITS CHURNING BENEFIT UNDER SEC.80LB FOR 10 CONSECUTIVE YEARS FROM THE INITIAL ASSESSMENT YEAR. THEREFORE THE APPROACH OF THE AUTHORITIES RUNS COUNTER TO THE SCHEME AND THE INTENT OF THE LEGISLATURE. THEREBY THEY HAVE DENIED THE' LEGITIMATE BENEFIT, AN INCENTIVE GRANTED TO THE ASSESSEE. 6.1. THE COMMON ISSUE INVOLVED IN THE PRESENT APP EALS THUS IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF M/S. ACE MULTI AXES SYSTEMS LTD., (SUPRA) AND SINCE THERE IS NO CONTRARY DECISION ON THIS ISSUE THAT IS BROUGHT TO OUR NOTICE BY THE LEARNED D.R., WE RESPECTFULLY FOLLOW THE SAI D DECISION OF HONBLE KARNATAKA HIGH COURT AND DECIDE THE COMMON ISSUE INVOLVED IN THESE APPEALS IN FAVOUR OF THE ASSESSEE . ACCORDINGLY, WE UPHOLD THE IMPUGNED ORDERS OF THE L D. CIT(A) FOR A.YS. 2007-2008 AND 2009-2010 ON THIS ISSUE AND SET ASIDE THE ORDER OF THE LD. CIT(A) FOR A.Y. 2008-200 9 WITH A DIRECTION TO THE A.O. TO ALLOW THE CLAIM OF THE ASS ESSEE FOR DEDUCTION UNDER SECTION 80IB. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D AND APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24.0 4.2015. SD/- SD/- (SAKTIJIT DEY) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 24 TH APRIL, 2015. VBP/- 13 ITA.NO.62/H/2012, 273 & 1080/HYD/2013 M/S. METROCHEM API P. LTD., HYDERABAD. COPY TO 1. M/S. METROCHEM API PVT. LTD., 302, BHANU ENCLAVE, SUNDER NAGAR, ERRAGADDA, HYDERABAD. 2. ACIT, CIRCLE 16(2), HYDERABAD 3. CIT(A)-V, HYDERABAD 4. CIT-IV, HYDERABAD. 5. D.R. I.T.A.T. A BENCH, HYDERABAD.