Edac Engineering Limited, CHENNAI V. ACIT, Cheyyar

ITA 637/CHNY/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4469 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 22-08-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 10-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M SRINIVASA RAO
• Assessee Lawyers: S SRIDHAR
• Keywords: Capital asset; Bonafide belief; Non-deduction of tax; Valuation report
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NO. 637/MDS/2013 (ASSESSMENT YEAR : 2009-10) M/S EDAC ENGINEERING LIMITED, 88, SPIC HOUSE, MOUNT ROAD, GUINDY, CHENNAI - 600 032. PAN : AABCS 0321 G (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V, CHENNAI - 600 034. (RESPONDENT) APPELLANT BY : SH.S. SRIDHAR, ADVOCATE RESPONDENT BY : SH.M. SRINIVASA R AO, CIT DATE OF HEARING : 22.08.2013 DATE OF PRONOUNCEMENT : 23.09.2013 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE ASSESSEE, IT HAS RAIS ED FIVE GROUNDS OF WHICH, GROUNDS 4 AND 5 ARE GENERAL NEEDING NO AD JUDICATION. 2. VIDE ITS GROUND NO.1, ASSESSEE ASSAILS DENIAL OF ITS CLAIM FOR DEDUCTION UNDER SECTION 54G OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). I.T.A. NO. 637/MDS/13 2 3. FACTS APROPOS ARE THAT ASSESSEE, ENGAGED IN INFR ASTRUCTURAL DEVELOPMENT AND CONSTRUCTION WORK, INCLUDING MANUFA CTURING AND ERECTION AND COMMISSIONING OF BOILERS FOR POWER PLA NT, HAD FILED ITS RETURN FOR THE IMPUGNED ASSESSMENT YEAR ON 29.9.200 9 DECLARING AN INCOME OF ` 12,60,91,350/-. ASSESSEE HAD CLAIMED A DEDUCTION OF ` 41,03,70,946/- UNDER SECTION 54G OF THE ACT, ON CAP ITAL GAINS ARISING OUT OF SALE OF ITS LAND IN CHEMMENCHERY VILLAGE, TA MBARAM TALUK, EFFECTED BY IT ON 23.4.2008 AND 14.7.2008. CLAIM O F THE ASSESSEE WAS THAT THE LAND WAS URBAN IN NATURE COMING WITHIN THE MEANING OF SECTION 54G OF THE ACT, SOLD IN CONNECTION WITH SHI FTING OF ITS INDUSTRIAL UNDERTAKING FROM AN URBAN AREA TO A NON-URBAN AREA, I.E. SHIFTING OF INDUSTRIAL UNDERTAKING FROM CHEMMENCHERY TO KOPPUR WHICH WAS A NON-URBAN AREA. AS PER THE ASSESSEE, CHEMMENCHERY VILLAGE, WHERE THE LAND SOLD WAS SITUATED, WAS AN URBAN AREA AND THEREFORE IT WAS ELIGIBLE FOR CLAIMING THE BENEFITS UNDER SECTIO N 54G OF THE ACT. 4. ASSESSING OFFICER, HOWEVER, WAS OF THE OPINION T HAT CHEMMENCHERY VILLAGE WAS INCLUDED IN CHENNAI CITY C ORPORATION ONLY FROM 2011 THROUGH GOVERNMENT ORDER D NO.256 DA TED 26.12.2009. ACCORDING TO THE A.O., ASSESSEES AVER MENT THAT THE LAND IN CHEMMENCHERY VILLAGE WAS AN URBAN AREA COUL D NOT BE ACCEPTED. AUTHORITY FOR RECOGNIZING ANY LAND AS AN URBAN LAND, FOR THE I.T.A. NO. 637/MDS/13 3 PURPOSE OF SECTION 54G, IN THE OPINION OF THE A.O., WAS THE CENTRAL GOVERNMENT. GOVERNMENT OF INDIA HAD ISSUED A NOTIF ICATION NO.10076 ON 2.4.1996, NOTIFYING AREAS COMPRISED IN CORPORATION OF CHENNAI (THEN MADRAS), ALONG WITH CERTAIN OTHER TOW NS AND CITIES AS URBAN LAND WITHIN THE MEANING OF SECTION 54G OF THE ACT. AS PER THE A.O., EXPANSION OF LIMITS OF A CITY FELL IN THE DOM AIN OF THE STATE GOVERNMENT. HE WAS OF THE FIRM OPINION THAT EXPANS ION OF THE LIMITS OF CHENNAI CITY SO AS TO INCLUDE CHEMMENCHERY VILLA GE WITHIN, HAD TAKEN EFFECT ONLY IN 2011 THROUGH NOTIFICATION DATE D 26.12.2009. 5. ASSESSEE IN SUPPORT OF ITS CONTENTION THAT CHEMM ENCHERY VILLAGE WAS AN URBAN AREA, PRODUCED RECEIPTS FOR PA YING URBAN LAND TAX PAYMENTS. HOWEVER, A.O. NOTED THAT PAYMENTS OF URBAN LAND TAX WERE MADE TO VILLAGE PANCHAYATS AND NOT TO CHENNAI CITY CORPORATION. ASSESSEE HAD ALSO RELIED ON THE MASTE R PLAN OF CHENNAI METROPOLITAN DEVELOPMENT AUTHORITY (CMDA), WHICH CLASSIFIED CHEMMENCHERY VILLAGE AS AN INDUSTRIAL ZO NE FORMING A PART OF CHENNAI. THIS WAS ALSO NOT ACCEPTED BY THE A.O. FOR THE REASON THAT METROPOLITAN DEVELOPMENT AUTHORITY HAD A DIFFE RENT ROLE, VIZ. PLANNING OF CITY DEVELOPMENT, AND THEY HAD NO AUTHO RITY TO EXPAND THE CITY LIMITS. BASED ON A STUDY OF THE NOTIFICATION NO. D-256 DATED 26.12.2009, ASSESSING OFFICER CAME TO A CONCLUSION THAT TAMIL NADU I.T.A. NO. 637/MDS/13 4 GOVERNMENT HAD DECIDED TO BRING INTO THE FOLD OF CH ENNAI CITY, THE SURROUNDING VILLAGES AND TOWN PANCHAYATS, INTER ALI A INCLUDING THEREIN CHEMMENCHERY VILLAGE ALSO, BASED ON REPORTS OF TWO SUB- COMMITTEES, FORMED FOR THAT PURPOSE, ONLY FROM THE YEAR 2011. ACCORDING TO HIM, AT THE TIME WHEN THE PROPERTY AT CHEMMENCHERY VILLAGE WAS SOLD BY THE ASSESSEE, IT WAS NOT AN URB AN AREA. 6. EVEN OTHERWISE, AS PER ASSESSING OFFICER, THE RE PORT OF THE DIRECTORS OF ASSESSEE-COMPANY FOR FINANCIAL YEAR 20 07-08, HAD MENTIONED THAT ITS WORK SITE WAS BEING SHIFTED FROM CHEMMENCHERY TO PUZAL. BOTH CHEMMENCHERY AND PUZAL VILLAGE WERE IN CLUDED IN CHENNAI CITY LIMITS ONLY BY WAY OF NOTIFICATION NO. 256 OF 26.12.2009 WHICH WAS TO TAKE EFFECT IN 2011. THEREFORE, ACCOR DING TO HIM, BOTH THE VILLAGES COULD NOT BE CONSIDERED AS PART OF CHE NNAI CITY. HENCE, SHIFTING OF INDUSTRIAL UNDERTAKING, IF AT ALL DONE BY THE ASSESSEE, WAS FROM NON-URBAN AREA TO ANOTHER NON-URBAN AREA AND T HEREFORE, CAPITAL GAINS ARISING IN THE COURSE OF SUCH SHIFTING, COULD NOT ENJOY THE DEDUCTIONS GIVEN UNDER SECTION 54G OF THE ACT. 7. ASSESSING OFFICER ALSO MADE A VERIFICATION OF TH E ITEMS ON WHICH THE CLAIM OF DEDUCTION UNDER SECTION 54G WAS MADE B Y THE ASSESSEE. HE FOUND THAT SUCH CLAIM WAS FOR MACHINE RY PURCHASED I.T.A. NO. 637/MDS/13 5 DURING FINANCIAL YEARS 2007-08 AND 2008-09 AND FOR LAND PURCHASED AT VENKATESHPURAM VILLAGE IN KOPPUR HAMLET OF TIRUV ALLUR DISTRICT, IN 2010. AS PER THE A.O., THE CLAIM FOR EXEMPTION WER E IN RESPECT OF ASSETS ADDED IN PRECEDING PREVIOUS YEARS 2007-08 AN D 2008-09, AND FOR ASSETS PURCHASED DURING 2009-10 AND 2010-11. O UT OF THE ABOVE, LATTER PURCHASES ALONE WERE MADE UTILIZING FUNDS DR AWN FROM DEPOSITS OF ` 19.6 CRORES MADE UNDER CAPITAL GAINS DEPOSITS SCHE ME. IN OTHER WORDS, ACCORDING TO A.O., THERE WAS NOTHING T O SHOW THAT ASSESSEE HAD SHIFTED ANY INDUSTRIAL UNDERTAKING FRO M CHEMMENCHERY VILLAGE TO KOPPUR. AS PER A.O., THE LIST OF MACHIN ERY ADDED BY THE ASSESSEE DURING THE MATERIAL PERIOD, WERE ONES USED IN CONSTRUCTION AND EARTH MOVING, AND HAD NO USE AS SUCH IN A FABRI CATION UNIT. 8. ASSESSEE HAD ALSO FILED AN EXPERT OPINION OF AN ADVOCATE AS WELL AS A CHARTERED ACCOUNTANT IN WHICH IT WAS STAT ED THAT CHEMMENCHERY VILLAGE WAS IN URBAN AREA. NEVERTHELE SS, AS PER THE A.O., THOUGH THE CHEMMENCHERY VILLAGE COULD BE CONS IDERED AS URBAN AREA WITHIN THE MEANING OF TAMIL NADU URBAN L AND (CEILING AND REGULATION) ACT, 1978, IT WOULD NOT BE AN URBA N AREA FALLING WITHIN SECTION 54G OF THE ACT, UNLESS AND UNTIL THE RE WAS A CENTRAL GOVERNMENT NOTIFICATION BRINGING CHEMMENCHERY VILLA GE WITHIN MADRAS CITY LIMITS. HE THUS CAME TO A CONCLUSION T HAT ASSESSEE WAS I.T.A. NO. 637/MDS/13 6 NOT ENTITLED TO CLAIM DEDUCTION UNDER SECTION 54G O F THE ACT. AN ADDITION OF ` 41,03,70,946/- WAS MADE. 9. IN ITS APPEAL BEFORE CIT(APPEALS), ARGUMENT OF T HE ASSESSEE WAS THAT IT HAD SHIFTED ITS PLANT FROM CHEMMENCHERY VILLAGE TO KOPPUR VILLAGE, TIRUVALLUR DISTRICT. AS PER THE AS SESSEE, MAIN DISPUTE WAS WITH REGARD TO NATURE OF LOCATION OF CHEMMENCHE RY UNIT. FOR BUTTRESSING ITS ARGUMENT THAT CHEMMENCHERY VILLAGE WAS AN URBAN AREA, ASSESSEE ONCE AGAIN RELIED ON THE LEGAL OPINI ON FURNISHED BEFORE ASSESSING OFFICER. HOWEVER, THE CIT(APPEALS ) WAS NOT IMPRESSED. ACCORDING TO HIM, ASSESSEE WAS UNABLE T O ADDUCE ANY AUTHENTIC MATERIAL TO SUPPORT ITS CLAIM. TAMIL NAD U GOVERNMENT, VIDE ORDER IN D.NO.256 DATED 26.12.2009, HAD CLEARLY STA TED THAT CHEMMENCHERY WOULD BE ADDED TO CHENNAI CITY CORPORA TION LIMIT WITH EFFECT FROM 2011 ONLY. ASSESSEES CLAIM RELAT ED TO A PERIOD MUCH PRIOR TO THAT. HE THUS HELD THAT THE ADDITION WAS RIGHTLY DONE BY THE A.O. 10. NOW BEFORE US, ADV. S. SRIDHAR, APPEARING FOR T HE ASSESSEE, SUBMITTED THAT KOPPUR, THE PLACE TO WHICH ASSESSEE HAD SHIFTED WAS UNDISPUTEDLY A NON-URBAN AREA. THE ONLY QUESTION W AS WHETHER CHEMMENCHERY WAS AN URBAN AREA OR NOT. ASSESSING O FFICER HAD I.T.A. NO. 637/MDS/13 7 CONFUSED HIMSELF IN CONSIDERING PUZAL AS THE AREA T O WHICH ASSESSEE HAD SHIFTED FROM CHEMMENCHERY. ASSESSEE HAD IN FAC T SHIFTED TO KOPPUR. NOTIFICATION DATED 26.12.2009 OF TAMIL NAD U GOVERNMENT RELATED BACK TO THE DATE, WHEN EXPANSION OF CITY LI MITS HAD ACTUALLY TAKEN PLACE. NOTIFICATION ONLY DECLARED THE FACTUM OF EXPANSION OF CITY LIMITS WHICH HAD ALREADY TAKEN PLACE. IT WOUL D NEVER MEAN THAT SUCH AREA WAS NOT A PART OF THE CITY. RELYING ON N OTIFICATION NO.10056 DATED 2 ND APRIL, 1996 OF CENTRAL GOVERNMENT, LEARNED A.R. SUBMITTED THAT CENTRAL GOVERNMENT HAD DECLARED AREA S FALLING WITHIN THE LIMITS OF MUNICIPAL CORPORATION OR MUNICIPALITY TO BE AN URBAN AREA WITHIN THE MEANING OF SECTION 54G OF THE ACT. THE QUESTION THEREFORE, ACCORDING TO LEARNED A.R., WAS WHETHER T HE PLACES MENTIONED IN THE SAID NOTIFICATION WOULD INCLUDE CH EMMENCHERY OR NOT. ACCORDING TO HIM, NOTIFICATION DATED 26.12.20 09 OF TAMIL NADU GOVERNMENT HAD CONSIDERED ACTUAL EXPANSION OF CITY LIMITS WHICH HAD HAPPENED AFTER 1978, AND THIS WAS CLEARLY MENTIONED IN THE PREAMBLE THEREOF. NOTIFICATION ONLY RECOGNIZED WHAT HAD ALR EADY HAPPENED. IT WOULD NOT MEAN THAT SUCH AREAS WERE NOT PART OF CHE NNAI CITY. 11. CONTINUING HIS ARGUMENTS, LD. COUNSEL FOR THE A SSESSEE REFERRED TO SECTION 6-A OF TAMIL NADU URBAN LAND TAX ACT, 19 66. ACCORDING TO HIM, URBAN AREA WAS DEFINED THEREIN AS AREA CO MPRISED IN CITY OF I.T.A. NO. 637/MDS/13 8 MADRAS AS ALSO THOSE AREAS IN MADRAS CITY BELT AREA . FURTHER, ACCORDING TO HIM, BY VIRTUE OF SECTION 3(O) OF TAMI L NADU URBAN LAND (CEILING & REGULATION) ACT, 1978, ANY LAND SITUATED WITHIN THE LIMITS OF AN URBAN AGGLOMERATION FELL WITHIN THE AMBIT OF URB AN LAND. URBAN AGGLOMERATION WAS DEFINED IN SECTION 3(N) OF THE S AME ACT TO MEAN THE AREA COMPRISED IN SCHEDULE I THERETO. SCHEDULE I SPECIFIED THAT ST. THOMAS MOUNT-CUM-PALLAVARAM CANTONMENT TO BE WI THIN MADRAS URBAN AGGLOMERATION. CHEMMENCHERY VILLAGE FELL WIT HIN ST. THOMAS MOUNT-CUM-PALLAVARAM CANTONMENT AND HENCE IT WAS NO THING BUT URBAN LAND. ACCORDING TO HIM, IT WAS REQUIRED TO G IVE A HARMONIOUS CONSTRUCTION TO THE TERM URBAN AREA WHILE INTERPR ETING SECTION 54G OF THE ACT, SINCE CENTRAL GOVERNMENT NOTIFICATION D ATED 2 ND APRIL, 1996 ITSELF MENTIONED LIMITS OF MUNICIPAL CORPORATION OR MUNICIPALITY OF MADRAS WITHOUT EXACTLY SPECIFYING HOW SUCH LIMITS W ERE TO BE CONSTRUED. 12. COMING TO THE ASPECT OF SHIFTING FROM CHEMMENCH ERY TO KOPUR, WHICH WAS DOUBTED BY THE LOWER AUTHORITIES, LEARNED A.R., RELYING ON PAPER-BOOK PAGE 35, SUBMITTED THAT BOILER ERECTION REGISTRATION RENEWAL CERTIFICATE ISSUED BY DIRECTOR OF BOILERS, TAMIL NADU ON 4.5.2007 WAS ADDRESSED TO THE CHEMMENCHERY UNIT. A CCORDING TO HIM, PWD DEPARTMENT, VIDE ITS LETTER DATED 26.9.201 1, PLACED AT I.T.A. NO. 637/MDS/13 9 PAPER-BOOK PAGE 42, HAD NOTED THE SHIFTING OF WORKS TO KOPPUR LOCATION. AS PER LEARNED A.R., PUZAL WAS ONLY A HO LDING AREA AND THE SHIFTING WAS FROM CHEMMENCHERY TO KOPPUR. RELYING ON A CERTIFICATE ISSUED BY CENTRAL BOARD OF EXCISE AND CUSTOMS DATED 27.1.2011, PLACED AT PAPER-BOOK PAGE 44, LEARNED A.R. SUBMITTE D THAT THE LOCATION OF ITS MANUFACTURING UNIT AT KOPPUR ROAD W AS REGISTERED BY SAID DEPARTMENT BASED ON ITS APPLICATION DATED 21.1 .2011. 13. AGAIN, AS PER LEARNED A.R., URBAN LAND TAX WAS PAID IN RESPECT OF CHEMMENCHERY LAND AS EARLY AS FROM 1998. PLACIN G RELIANCE ON AN ORDER OF ASSTT. COMMISSIONER OF URBAN LAND TAX, ALANDUR, PLACED AT PAPER-BOOK PAGES 49 TO 52, LEARNED A.R. SUBMITTE D THAT SAID AUTHORITY HAD HELD CHEMMENCHERY TO BE AN URBAN LAND . ACCORDINGLY, ASSESSEE WAS PAYING URBAN LAND TAX EVERY YEAR. LEA RNED A.R. SUBMITTED THAT NEITHER PURCHASE OF LAND AT KOPPUR, NOR THE SALE OF LAND AT CHEMMENCHERY WERE DOUBTED BY THE DEPARTMENT . ACCORDING TO HIM, ASSESSEE HAD SUBMITTED A DETAILED LIST OF P LANT AND MACHINERY ACQUIRED FOR KOPPUR UNIT DURING FINANCIAL YEARS 200 7-08 AND 2008-09 COSTING IN TOTAL ` 22,32,81,824/-. RELYING ON PAPER-BOOK PAGES 159 T O 187, LEARNED A.R. SUBMITTED THAT THE BREAK-UP OF SU CH PLANT AND MACHINERY CLEARLY SHOWED THAT THESE WERE NOT ANY EA RTH MOVING OR CONSTRUCTION EQUIPMENT. ITEMS ACQUIRED WERE MACHIN ERY USED IN A I.T.A. NO. 637/MDS/13 10 FABRICATION PLANT AND SUCH PLANT WAS ESTABLISHED BY THE ASSESSEE AT KOPPUR. ACCORDING TO HIM, SECTION 54G ALLOWED AN A SSESSEE TO PURCHASE NEW MACHINERY OR ACQUIRE BUILDING OR LAND WITHIN A PERIOD OF ONE YEAR PRIOR OR THREE YEARS AFTER THE DATE OF TRA NSFER. TRANSFER OF LAND AT CHEMMENCHERY HAVING BEEN EFFECTED DURING TH E PERIOD 23 RD APRIL, 2008 TO 14 TH JULY, 2008, THE ASSESSEE COULD CLAIM EXEMPTION UNDER SECTION 54G FOR INVESTMENT MADE DURING THE PE RIOD 23 RD APRIL, 2007 TO 22 ND APRIL, 2011. ACCORDING TO HIM, ASSESSEES CLAIM F OR EXEMPTION WERE ON PLANT AND MACHINERY ACQUIRED FROM 23 RD APRIL, 2007 AND NOT FOR ANY DATE PRIOR TO THAT. TOTAL VAL UE OF PLANT AND MACHINERY CAME TO ` 22,32,81,824/- AND THE COST OF THE LAND ACQUIRED CAME TO ` 18,70,89,122/-. ACCORDING TO HIM, AUTHORITIES BEL OW GAVE A VERY NARROW INTERPRETATION OF SECTION 54G AND DENIE D A LEGITIMATE CLAIM AVAILABLE TO THE ASSESSEE. ASSESSEE HAD MOVE D OUT OF AN URBAN AREA TO A RURAL AREA AND DESPITE THAT, IT WAS NOT GIVEN THE BENEFIT OF SECTION 54G. RELYING ON A DECISION OF H ONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. SAMBANDAM UDAYKUMA R (251 CTR 317), LEARNED A.R. SUBMITTED THAT OBJECT OF SECTION 54G WAS TO ENCOURAGE SHIFTING OF INDUSTRIAL UNDERTAKING FROM U RBAN AREA TO RURAL AREA AND CONSIDERING SUCH OBJECT, A LIBERAL INTERPR ETATION WAS REQUIRED TO BE GIVEN. I.T.A. NO. 637/MDS/13 11 14. PER CONTRA, LEARNED D.R., STRONGLY SUPPORTING T HE ORDERS OF AUTHORITIES BELOW, SUBMITTED THAT ASSESSING OFFICER HAD NO CONFUSION REGARDING THE CLAIM OF SHIFTING OF UNDERTAKING MADE BY THE ASSESSEE. ASSESSEE WAS ONLY TRYING TO CREATE CONFUSION BY STA TING THAT SHIFTING OF UNDERTAKING WAS FROM CHEMMENCHERY TO KOPPUR, WHI CH ARGUMENT WAS NEVER TAKEN BEFORE THE ASSESSING OFFICER. EVEN OTHERWISE, ASSESSEE ALONG WITH THE APPEAL PAPERS, HAD ENCLOSED A COPY OF THE ASSESSMENT ORDER, WHICH WAS NOT COMPLETE. IT HAD N OT ATTACHED TWO IMPORTANT ANNEXURES MENTIONED THEREIN, NAMELY, ORDE R D.NO.256 DATED 26.12.2009 OF TAMIL NADU GOVERNMENT AND NOTIF ICATION NO. 10056 DATED 2 ND APRIL, 1996 OF CENTRAL GOVERNMENT. FOR THIS REASO N ALONE, ACCORDING TO HIM, THE APPEAL HAD TO BE DISMI SSED. 15. CONTINUING HIS ARGUMENTS, LEARNED D.R. SUBMITTE D THAT ASSESSEES ADDRESS MENTIONED IN VARIOUS COMMUNICATI ON PLACED AT PAPER-BOOK PAGES 36 TO 41, WAS THAT OF ITS PUZAL OF FICE. PUZAL WAS THE REGISTERED OFFICE OF THE ASSESSEE AND NOT A HOL DING AREA AS MENTIONED BY THE ASSESSEE. MACHINERY ACQUIRED WERE ONLY FOR EARTH MOVING AND CONSTRUCTION AND NOT ANY MANUFACTURING E QUIPMENT. AS PER THE LEARNED D.R., CONDITIONS MENTIONED IN SECTI ON 54G WERE NOT SATISFIED BY THE ASSESSEE. NOTIFICATION DATED 2 ND APRIL 1996 OF CENTRAL I.T.A. NO. 637/MDS/13 12 GOVERNMENT MENTIONED MUNICIPAL LIMITS OF MADRAS AS THE URBAN AREA FOR THE PURPOSE OF SECTION 54G OF THE ACT. IN THE OPINION OF LEARNED D.R., TAMIL NADU URBAN LAND TAX ACT, 1966, WAS AN E NACTMENT FOR ASSESSING URBAN LAND TAX. DEFINITION GIVEN THEREIN WOULD HAVE NO EFFECT WHATSOEVER ON A CLAIM OF EXEMPTION MADE UNDE R SECTION 54G OF THE ACT. MERE MENTIONING OF AN AREA AS URBAN AR EA IN TAMIL NADU URBAN LAND TAX ACT, 1966, WOULD NOT PER SE MAKE IT URBAN AREA QUALIFYING FOR DEDUCTION UNDER SECTION 54G OF THE A CT. THE ONLY AUTHORITY TO DECIDE THE LIMITS OF CHENNAI CITY CORP ORATION WAS TAMIL NADU GOVERNMENT. ORDER D.NO.256 DATED 26.12.2009 O F TAMIL NADU GOVERNMENT CLEARLY MENTIONED THAT CHEMMENCHERY WOUL D BE ADDED TO THE CITY LIMITS WITH EFFECT FROM 2011 ONLY. EVE N OTHERWISE, AS PER THE LEARNED D.R., THIS NOTIFICATION ITSELF HAD COME ON 26.12.2009 AND EVEN THIS DATE WAS WELL AFTER THE END OF THE RELEVA NT PREVIOUS YEAR. IN ANY CASE, ACCORDING TO HIM, ASSESSEE COULD NOT SAY THAT EVEN PRIOR TO 26.2.2009, CHEMMENCHERY WAS A PART OF CHENNAI CITY CORPORATION LIMITS. JUST BECAUSE MADRAS CITY AS SUCH WAS CONSI DERED AS URBAN AREA UNDER TAMIL NADU URBAN LAND TAX ACT, 1966, IT COULD NOT BE SAID THAT CITY LIMITS STOOD EXPANDED. 16. FURTHER CONTINUING HIS ARGUMENTS, LEARNED D.R. SUBMITTED THAT ASSESSING OFFICER HAD NOT TAKEN A NARROW VIEW ON TH E INTERPRETATION OF I.T.A. NO. 637/MDS/13 13 SECTION 54G. ASSESSING OFFICER COULD NOT OVERSTEP THE LIMITS PROVIDED IN THE ACT. IF THE LAND SOLD WAS SITUATED IN URBAN AREA, ASSESSEE COULD CLAIM SUCH EXEMPTION UNDER SECTION 5 4G OF THE ACT, BUT NOT OTHERWISE. THE LAND SOLD, ON THE OTHER HAN D, AT THE TIME OF SALE, WAS NOT A PART OF CHENNAI CITY LIMITS AND THE REFORE, NOT AN URBAN AREA. 17. AD LIBITUM REPLY OF THE LEARNED A.R. WAS THAT A SSESSEE IN ITS LETTER DATED 8.12.2011, PLACED AT PAPER-BOOK PAGES 12 TO 18, HAD CLEARLY STATED BEFORE THE ASSESSING OFFICER THAT CL AIM OF DEDUCTION UNDER SECTION 54G WAS FOR SHIFTING OF ITS UNDERTAKI NG FROM CHEMMENCHERY TO KOPPUR VILLAGE. ASSESSEE HAD ALSO GIVEN A LEGAL OPINION BY SHRI L.S.M. HASAN FIZAL, B.A., M.L., GOV ERNMENT ADVOCATE, MADRAS HIGH COURT, WHICH CLEARLY STATED T HAT CHEMMENCHERY WAS AN URBAN AREA. AS FOR THE PLEADIN G OF THE LEARNED D.R. THAT COPY OF ASSESSMENT ORDER FILED AL ONGWITH APPEAL WAS INCOMPLETE AND WAS NOT HAVING THE NOTIFICATIONS APPENDED THERETO, LEARNED A.R. SUBMITTED THAT SUCH NOTIFICAT IONS WERE IN PUBLIC DOMAIN AND NOT ANY PRIVATE DOCUMENTS. 18. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE THAT CLAIM OF DEDUCTION UNDER S ECTION 54G HAS I.T.A. NO. 637/MDS/13 14 BEEN MADE BY THE ASSESSEE ON A LAND SOLD AT CHEMMEN CHERY VILLAGE. IN OUR OPINION, THREE QUESTIONS ARE REQUI RED TO BE DECIDED. FIRST IS WHETHER CHEMMENCHERY WAS AN URBAN AREA FAL LING WITHIN THE EXPLANATION GIVEN UNDER SECTION 54G(1) OF THE ACT. SECOND IS WHETHER THE ASSESSEE HAD ESTABLISHED AN INDUSTRIAL UNDERTAKING AT KOPPUR VILLAGE. THIRD IS WHETHER THE SALE OF LAND AT CHEMMENCHERY AND ESTABLISHMENT OF AN INDUSTRIAL UNDERTAKING, IF ANY, AT KOPPUR VILLAGE SATISFIED THE REQUIREMENTS REGARDING SHIFTI NG OF AN INDUSTRIAL UNDERTAKING MENTIONED IN SECTION 54G OF THE ACT. 19. TAKING UP THE FIRST QUESTION, IT IS NECESSARY T O HAVE A LOOK AT EXPLANATION TO SECTION 54G(1), WHICH DEFINES URBAN AREA, BEFORE WE PROGRESS FURTHER. THE SAID EXPLANATION READS AS UN DER:- EXPLANATION. IN THIS SUB-SECTION, 'URBAN AREA' MEANS ANY SUCH AREA WITHIN THE LIMITS OF A MUNICIPAL CORPORATION O R MUNICIPALITY AS THE CENTRAL GOVERNMENT MAY, HAVING REGARD TO THE PO PULATION, CONCENTRATION OF INDUSTRIES, NEED FOR PROPER PLANNI NG OF THE AREA AND OTHER RELEVANT FACTORS, BY GENERAL OR SPECIAL O RDER, DECLARE TO BE AN URBAN AREA FOR THE PURPOSES OF THIS SUB-SE CTION. OBVIOUSLY, THE POWER TO DECLARE ANY AREA AS URBAN AREA IS VESTED WITH CENTRAL GOVERNMENT BY VIRTUE OF THE ABOVE EXPL ANATION. THIS BRINGS US TO THE NOTIFICATION ISSUED BY THE CENTRAL GOVERNMENT ON 2 ND APRIL, 1996, WHICH READS AS UNDER:- I.T.A. NO. 637/MDS/13 15 NOTIFICATION NO.10056, DT. 2 ND APRIL, 1996. CAPITAL GAINS SECTION 54G(1) IN EXERCISE OF THE POWERS CONFERRED BY THE EXPLANAT ION BELOW SUB-SECTION(1) OF SECTION 54G OF THE INCOME-TAX ACT, 1961(43 OF 19 61), THE CENTRAL GOVERNMENT, HAVING REGARD TO THE POPULATION, CONCEN TRATION OF INDUSTRIES, NEED FOR PROPER PLANNING OF THE AREA AND OTHER RELE VANT FACTORS, HEREBY DECLARES THE AREAS FALLING WITHIN THE LIMITS OF MUN ICIPAL CORPORATION OR MUNICIPALITY, AS THE CASE MAY BE, MENTIONED AND IN COLUMN(3) OF THE SCHEDULE HERETO ANNEXED AND SITUATED WITHIN THE STATE SHOWN IN COLUMN(2) THEREOF, AS URBAN AREAS FOR THE PURPOSE OF SUB-SECTION(1) OF SECTION 54G OF THE INCOME-TAX ACT, 1961 (43 OF 1961): SCHEDULE S.NO. NAME OF THE STATE NAME OF THE MUNICIPAL CORPORATION OR MUNICIPALITY SITUATED IN THE STATE MENTIONED IN COLUMN (2) (1) (2) (3) 1. TAMIL NADU 1. ATHUR 2. BHAVANI 3. COIMBATORE 4. COONOOR 5. DHARMAPURI 6. ERODE 7. GOBICHETTIPALAYAM 8. MADRAS 9. MADURAI 10. METTUPALAYAM 11. NAMAKKAL 12. POLLACHI 13. SALEM 14. TIRUCHIRAPALLI 15. UDUMALPET 16. UTHAGAMANDALAM (OOTACAMUND) I.T.A. NO. 637/MDS/13 16 2. THIS NOTIFICATION WILL COME INTO EFFECT FROM THE DATE OF ITS PUBLICATION IN THE OFFICIAL GAZETTE.' 20. THE ABOVE NOTIFICATION STATES THAT AREAS WITHIN THE LIMITS OF VARIOUS MUNICIPAL CORPORATION OR MUNICIPALITY MENTI ONED THEREIN WHICH, INTER ALIA, INCLUDES MADRAS AS WELL, WOULD BE URBAN AREA FOR THE PURPOSE OF SECTION 54G OF THE ACT. FIRST QUEST ION THUS BOILS DOWN TO ISSUE AS TO WHETHER CHEMMENCHERY WAS WITHIN THE LIMITS OF MUNICIPAL CORPORATION OF MADRAS. AS PER THE REVENU E, THE SOLE AUTHORITY TO DETERMINE THE LIMITS OF MUNICIPAL CORP ORATION IS GOVERNMENT OF TAMIL NADU. GOVERNMENT OF TAMIL NADU HAD THROUGH ITS ORDER NO.D 256 DATED 26.12.2009 MENTIONED ABOUT EXPLANATION OF LIMITS OF VARIOUS MUNICIPAL CORPORATION. SAID NOTI FICATION IN TAMIL IS ONE OF THE ANNEXURES FORMING PART OF THE ASSESSMENT ORDER. A COPY THEREOF HAS BEEN PLACED ON RECORD BY THE LEARNED A. R. DURING THE COURSE OF ARGUMENTS BEFORE US. VILLAGE OF CHEMMENC HERY DOES FIND A MENTION THEREIN. A LOOK AT THE INTRODUCTION PARA OF THE NOTIFICATION CLEARLY SHOWS THAT THE LIMITS TO CHENNAI METROPOLIT AN AREA WAS EARLIER FIXED IN 1978, BUT THEREAFTER, OVER THE PERIOD, CHE NNAI HAD GROWN CONSIDERABLY. SAID INTRODUCTION PARA READS AS UNDE R:- I.T.A. NO. 637/MDS/13 17 ENGLISH TRANSLATION OF THE ABOVE IF ATTEMPTED CAN R EAD LIKE THIS:- CHENNAI CORPORATION IS CURRENTLY SPREAD OVER AN ARE A OF 174 SQ. KILOMETERS. CURRENT BOUNDARIES OF CHENNAI CORPORAT ION WERE DEFINED IN 1978, MORE THAN 30 YEARS AGO. CHENNAI M ETROPOLITAN AREA IS WITNESSING RAPID GROWTH IN RECENT TIMES. A TTENTION HAS TO BE PAID TO ENSURE THAT THE NEEDS OF THESE PAST DEVE LOPING REGIONS ARE MET WITH AND PLANS HAVE TO BE DRAFTED TO PROVID E BASIC AMENITIES LIKE GOOD ROADS, DRINKING WATER SUPPLY, S TREET LAMPS, SEWAGE DISPOSAL AND PROPER SOLID WASTE MANAGEMENT. THERE IS A VAST DIFFERENCE IN THE QUALITY OF SERVICES AND AMEN ITIES PROVIDED BY VARIOUS LOCAL MUNICIPALITIES AND UNION S THAT AR E LOCATED IN CHENNAI METROPOLITAN AREA. MOREOVER, IT WAS FOUND THAT THE SERVICES HAVE FAILED TO MEET THE REQUIREMENTS. THE NEED FOR AND OPPORTUNITIES TO UNITE THESE MUNCIPALITIES AND UNIO NS GOVERNING REGIONS CLOSE TO THE METROPOLIS AND FOR THE EXPANSI ON OF CHENNAI METROPOLITAN AREA HAS BEEN FELT. A CLOSE READING OF THE NOTIFICATION, IN OUR OPINION , DOES SHOW THAT IT WAS ONLY RECOGNITION OF AN EXISTING SITUATION, OR M ORE IN THE NATURE OF A FAIT ACCOMPLI. PLACES SURROUNDING THE PERIMETER FIXED IN 1978, HAD ALREADY WIDENED OVER THE PERIOD OF TIME. IN OTHER WORDS, FOR ALL PRACTICAL PURPOSES, CHENNAI CITY LIMIT HAD EXPANDED . JUST BECAUSE A I.T.A. NO. 637/MDS/13 18 NOTIFICATION IN THIS REGARD WAS ISSUED BY THE STATE GOVERNMENT ON 26.12.2009, WOULD NOT MEAN THAT CHENNAI CITY LIMITS STOOD STATIC AFTER 1976, NOT MOVING AN INCH WIDER. NOTIFICATION OF TH E GOVERNMENT ITSELF HAD COME AT A STAGE WHEN ACTUAL GROUND REALITIES CO ULD NOT BE IGNORED. THIS IS EVIDENT FROM VARIOUS STANDING ORD ERS REFERRED IN THE NOTIFICATION DATED 26.12.2009 WHICH HAVE BEEN REFER RED ALL THROUGH SUCH NOTIFICATION. VARIOUS COMMITTEES WERE WORKING ON THE ISSUES AFFECTING URBANIZATION SINCE LONG, AS MENTIONED IN THE NOTIFICATION ITSELF. AN OFFICIAL RECOGNITION OF EXPANDED CITY L IMITS MIGHT HAVE TAKEN CONSIDERABLE TIME. JUST BECAUSE NOTIFICATION DATED 26.12.2009 STATE THAT WARD DIVISIONS WILL AS SUCH CONTINUE UPTO 2011 , WOULD NOT MEAN THAT CHENNAI WAS A SMALL CITY ONLY OF 174 SQ. KMS E VER SINCE 1978 WITHOUT ANY CHANGE. 21. WHILE INTERPRETING A PROVISION IN A STATUTE, IN TENTION BEHIND THE ENACTMENT IS EXTREMELY IMPORTANT. ENACTMENT OF SEC TION 54G BY THE LEGISLATURE WAS WITH AN INTENTION TO DE-URBANISE PO PULATED AREAS AND DE-INDUSTRIALISE SUCH AREA BY ENCOURAGING INDUSTRIA LIZATION OF AREAS, WHICH WERE UNDER DEVELOPED. THAT TAMIL NADU GOVERN MENT ITSELF HAD CONSIDERED AREAS PERIPHERAL TO CITY LIMITS AS U RBAN AREA, IS CLEAR FROM THE SUBSTITUTION OF SECTION 6 BY SECTION 6-A I N TAMIL NADU URBAN LAND TAX ACT, 1966, THROUGH AN AMENDMENT ACT OF 197 5. SECTION 6- I.T.A. NO. 637/MDS/13 19 A DEFINED AN URBAN AREA TO INCLUDE BOTH CITY OF M ADRAS AS WELL AS THE MADRAS CITY BELT AREA. NO DOUBT, AS POINTED OU T BY LEARNED D.R., TAMIL NADU URBAN LAND TAX ACT, 1966 IS A STATE ENAC TMENT FOR LEVYING URBAN LAND TAX. BUT, NEVERTHELESS, IF FOR THE PURPOSE OF COLLECTION OF URBAN LAND TAX, AN AREA IS CONSIDERED TO BE URBAN, WE CANNOT SAY THAT FOR OTHER PURPOSES, IT IS NOT URBAN . JUST BECAUSE THE NOTIFICATION OF TAMIL NADU GOVERNMENT EXPANDING THE LIMITS OF CHENNAI CITY CORPORATION CAME ONLY ON 26.12.2009, W OULD NOT IN ANY WAY TAKE THE GLEAN OUT OF THE ARGUMENT OF THE ASSES SEE THAT CHEMMENCHERY, WHICH WAS A PART OF MADRAS CITY BELT AREA, WAS ALREADY AN URBAN AREA. HARMONIOUS INTERPRETATION T HEREFORE REQUIRES THE NOTIFICATION D.256 DATED 26.12.2009 TO BE CONST RUED AS RELATING BACK TO THE VARIOUS PERIODS IN WHICH DIFFERENT AREA S MENTIONED THEREIN BECAME A PART OF THE CHENNAI CITY LIMITS, IN PRACTI CAL REALITY. 22. ASSESSEE HAD PRODUCED BEFORE THE ASSESSING OFFI CER A LEGAL OPINION GIVEN BY A GOVERNMENT ADVOCATE, COPY OF WHI CH HAS BEEN PLACED AT PAPER-BOOK PAGES 19 TO 23. IT IS STATED THEREIN THAT CHEMMENCHERY VILLAGE WAS COVERED WITHIN CHENNAI MET ROPOLITAN AREA AND WAS AN URBAN LAND SITUATED WITHIN THE URBA N AGGLOMERATION OF CHENNAI. PERTINENT PART OF THIS OPINION IS REPR ODUCED HEREUNDER:- I.T.A. NO. 637/MDS/13 20 11. SECTION 6-A OF TAMIL NADU URBAN LAND TAX ACT, 1 966, DEFINES URBAN AREA TO INCLUDE MADRAS CITY BELT AR EA. SECTION 1-A OF TAMIL NADU URBAN LAND TAX ACT, 1966, EXTENDS THE APPLICABILITY OF THE TAMIL NADU URBAN LAND TAX ACT TO MADRAS CITY BELT AREA WITH EFFECT FROM 01.07.1975 IN THE A REA COMPRISED WITHIN 16 KILOMETRES OF THE OUTER LIMITS OF THE CIT Y OF MADRAS, AS PER TAMIL NADU URBAN LAND TAX (AMENDMENT) ACT, 1975 , (ACT 45 OF 1975). 12. SECTION 3(O) OF TAMIL NADU URBAN LAND (CEILING & REGULATION) ACT, 1978, DEFINES URBAN LAND TO INCL UDE ANY LAND SITUATED WITHIN THE LIMITS OF AN URBAN AGGLOMERATIO N AND REFERRED TO AS SUCH IN THE MASTER PLAN. SECTION 3(N) OF TAM IL NADU URBAN LAND (CEILING & REGULATION) ACT, 1978, DEFINES URB AN AGGLOMERATION TO MEAN THE AREA COMPRISED IN THE UR BAN AGGLOMERATION SPECIFIED IN SCHEDULE I. SCHEDULE I OF TAMIL NADU URBAN LAND (CEILING & REGULATION) ACT, 1978, INCLUD ES ST. THOMAS MOUNT-CUM-PALLAVARAM CANTONMENT TO BE WITHIN THE MA DRAS URBAN AGGLOMERATION. SECTION 3(I) OF TAMIL NADU UR BAN LAND (CEILING & REGULATION) ACT, 1978, DEFINES MASTER P LAN TO IN RELATION TO AN AREA WITHIN AN URBAN AGGLOMERATION O R ANY PART THEREOF, MEANS THE PLAN (BY WHATEVER NAME CALLED) P REPARED UNDER ANY LAW FOR THE TIME BEING IN FORCE OR IN PUR SUANCE OF AN ORDER BY THE STATE GOVERNMENT FOR THE DEVELOPMENT O F SUCH AREA OR PART THEREOF. 13. SECOND MASTER PLAN FOR CHENNAI METROPOLITAN AR EA DESCRIBES CHENNAI METROPOLITAN AREA TO COMPRISE THE AREA COVERED BY CHENNAI CITY CORPORATION (CHENNAI DISTRI CT), 16 MUNICIPALITIES, 20 TOWN PANCHAYATS & 214 VILLAGES F ORMING PART OF 10 PANCHAYAT UNIONS IN THIRUVALLUR AND KANCHEEPURAM DISTRICTS. ANNEXURE XXVI OF SECOND MASTER PLAN GIVES THE LIST OF CORPORATION DIVISION AND VILLAGES IN CHENNAI METROP OLITAN AREA. AS PER THE SAID LIST, ITEM NO.XXXXVI NAMES ST. THOM AS MOUNT PANCHAYAT UNION, WHEREIN VILLAGE NO.190 SEMMANCHERY IN TAMBARAM TALUK, KANCHEEPURAM DISTRICT, IS INCLUDED IN SERIAL NO.297. 14. FROM THE ABOVE DISCUSSIONS, I CONCLUDE THAT TH E ABOVE IMMOVABLE PROPERTIES BEING VACANT LANDS IN DIFFEREN T SURVEY I.T.A. NO. 637/MDS/13 21 NUMBERS IN SEMMANCHERY VILLAGE, TAMBARAM TALUK, KANCHEEPURAM DISTRICT, MEASURING DIFFERENT EXTENTS OF LANDS, COVERED WITHIN THE CHENNAI METROPOLITAN AREA ARE UR BAN LANDS SITUATED WITHIN THE URBAN AGGLOMERATION OF CHENNAI. IN OUR OPINION, LOWER AUTHORITIES FELL IN ERROR IN BRUSHING ASIDE THE ABOVE LEGAL OPINION LIGHTLY. EXPLANATION TO SECTIO N 54G(1) OF THE ACT HAS TO BE HARMONIOUSLY INTERPRETED SO THAT IT IS IN CONSONANCE WITH THE NEEDS OF A DEVELOPING CITY. NOTIFICATION DATED 26.12.2009 OF TAMIL NADU GOVERNMENT, READ ALONG WITH THE DEFINITI ON OF URBAN AREA GIVEN IN SECTION 6 A OF TAMIL NADU URBAN LAND TAX ACT, 1966 WILL CLEARLY SHOW THAT CHEMMENCHERY WAS INDEED WITH IN CITY LIMITS. ASSESSEE HERE WAS PAYING URBAN LAND TAX FOR ITS CHE MMENCHERY PROPERTY RIGHT FROM 1998, BASED ON DETERMINATION OF SUCH URBAN LAND TAX BY ASST. COMMISSIONER OF URBAN LAND TAX. THUS, IN OUR OPINION, THE FIRST QUESTION HAS TO BE ANSWERED IN FAVOUR OF ASSESSEE. CHEMMENCHERY VILLAGE IN WHICH THE LAND SOLD BY THE ASSESSEE WAS LOCATED, FELL WITHIN THE SCOPE OF URBAN AREA MENT IONED IN SECTION 54G OF THE ACT. 23. COMING TO SECOND QUESTION AS TO WHETHER ASSESSE E HAD ESTABLISHED AN INDUSTRIAL UNDERTAKING AT KOPPUR VIL LAGE, WE FIND THAT ACQUISITION OF LAND BY THE ASSESSEE AT KOPPUR VILLA GE ON 18 TH DAY OF JANUARY, 2010 AND 24 TH MAY, 2010 ARE EVIDENCED BY CONVEYANCE I.T.A. NO. 637/MDS/13 22 DEEDS, COPIES OF WHICH HAVE BEEN PLACED AT PAPER-BO OK PAGES 119 TO 158. THAT ASSESSEE HAD DEPOSITED THE CAPITAL GAINS ON TRANSFER OF THE CHEMMENCHERY LAND IN A CAPITAL GAINS ACCOUNT SC HEME WITH STATE BANK OF INDIA, CANNOT BE DISPUTED SINCE THIS HAS BEEN CERTIFIED BY THE BANK VIDE ITS LETTER DATED 31 ST OCTOBER, 2011, COPY OF WHICH HAS BEEN PLACED AT PAPER-BOOK PAGE 159. THAT ASSESSEE HAD ACQUIRED VARIOUS PLANT AND MACHINERY DURING THE FINANCIAL YE AR 2007-08 TO 2009-10 ALSO CANNOT BE DISPUTED. BREAK-UP OF SUCH ACQUISITION HAS BEEN PLACED AT PAPER-BOOK PAGES 160 TO 187. THIS G IVES AN EXHAUSTIVE LIST OF DIFFERENT ITEMS OF MACHINERY PUR CHASED. THE NATURE OF SUCH ITEMS DOES NOT SHOW THAT THESE WERE EARTH M OVING OR CONSTRUCTION MACHINES. WHAT IS TO BE SEEN IS WHETH ER THE PLANT AND MACHINERY PURCHASED WERE USED IN KOPPUR FOR SETTING UP AN INDUSTRIAL UNIT. ON THIS ASPECT, THE CERTIFICATE OF CENTRAL B OARD OF EXCISE & CUSTOMS ISSUED ON 27.1.2011, PLACED AT PAPER-BOOK 4 4, IS VERY RELEVANT. THIS PARTICULAR CERTIFICATE IS REPRODUCE D HEREUNDER:- FORM RC CENTRAL EXCISE REGISTRATION CERTIFICATE [UNDER RULE 9 OF THE CENTRAL EXCISE RULES,2002] THIS IS TO CERTIFY, SUBJECT TO CONDITIONS SPECIFIE D BELOW, THAT M/S EDAC ENGINEERING LTD, MANUFACTURING OF EXCISAB LE GOODS (NAME AND STYLE IN WHICH THE REGISTRANT IS LIK ELY TO CARRY OUT I.T.A. NO. 637/MDS/13 23 BUSINESS) (IN CASE OF A PROPRIETARY CONCERN OR BUSI NESS OWNED BY A HINDU UNDIVIDED FAMILY, THE NAME OF PROPRIETOR/HINDU UNDIVIDED FAMILY, AS THE CASE MAY BE, SHALL ALSO BE INDICATED ) IS/ARE REGISTERED FOR OPERATING AS A MANUFACTURER OR EXCISABLE GOODS (TYPE OR BUSINESS) AT 0.100, KOPPUR ROAD, VENKATESAPURAM VILLAGE, THIRUVALLUR, THIRUVALLUR, TAMIL NADU (ADDRESS OF THE BUSINESS PREMISES) ON THE BASIS OF THE APPLICATION RECEIVED IN THIS OFFICE ON 21/01/2011 ( DATE OF RECEIPT). REGISTRATION NUMBER IS AABCS0321GEM004 SD/ 31.1.11 DATE OF ISSUE OF ASSITANT COMMISSIONER OF CENTR AL EXCISE, ORIGINAL RC: 27/01/2011 POONAMALIEE DIVISIO N, CHENNAI-IV COMMISSIONERATE CONDITIONS 1. THIS REGISTRATION CERTIFICATE IS VALID ONLY FOR THE PREMISES AND PURPOSES SPECIFIED IN THE APPLICATION 2. REGISTRATION CERTIFICATE IS NOT TRANSFERABLE. 3. NO CORRECTIONS IN THE CERTIFICATE WILL BE VALID UNLE SS THE REQUEST FOR ANY CORRECTION/CHANGE IS APPLIED FOR AND THE SAME IS ACK NOWLEDGED. 4. THIS CERTIFICATE SHALL REMAIN VALID TILL THE REGIST RANT CARRIES ON THE ACTIVITY FOR WHICH IT HAS BEEN ISSUED OR SURRENDERS I T OR TILL IT IS REVOKED OR SUSPENDED. 5. THE GRANT OF THIS CERTIFICATE SHALL BE WITHOUT PREJ UDICE TO THE RIGHTS OF ANY OTHER PERSON (S) OVER THE REGISTERED PREMISES OR PURPOSE TO WHICH SUCH PERSON MAY BE LAWFULLY ENTITLED. COMMERCIAL TAXES DEPARTMENT OF GOVERNMENT OF TAMIL NADU HAD ALSO ISSUED A CERTIFICATE ON 3.2.2011, COPY OF WHIC H HAS BEEN PLACED AT PAPER-BOOK PAGE 45, WHICH ALSO STATES THAT ASSES SEE HAD ESTABLISHED A BRANCH/FACTORY/GODOWN AT KOPPUR, WITH EFFECT FROM 28.1.2011. ASSESSEE HAD ALSO RECEIVED A CERTIFICAT E FROM DIRECTORATE OF BOILERS, COPY OF WHICH HAS BEEN PLACED AT PAPER- BOOK PAGE 43, WHICH GIVES ITS KOPPUR ROAD UNIT REGISTRATION AS A SPECIAL CLASS I.T.A. NO. 637/MDS/13 24 BOILER REPAIRER UNDER INDIAN BOILER REGULATIONS, 19 50. NO DOUBT, AS POINTED OUT BY LEARNED D.R., PUBLIC WORKS DEPARTMEN T OF BOILERS DIRECTORATE HAD ADDRESSED NUMBER OF LETTERS TO ITS PUZAL OFFICE REGARDING ASSESSEES APPLICATION FOR UPGRADING IT T O A SPECIAL CLASS BOILER REPAIRER. BUT, NEVERTHELESS, THE FINAL CERT IFICATE WITH REGARD TO SUCH RECOGNITION AS SPECIAL CLASS BOILER REPAIRER W AS ADDRESSED TO ITS KOPPUR UNIT. ONE OTHER CONTENTION TAKEN BY LEA RNED D.R. IS THAT ASSESSEE HAD NEVER MENTIONED BEFORE THE LOWER AUTHO RITIES THAT SHIFTING WAS FROM CHEMMENCHERY TO KOPPUR. HOWEVER, ASSESSING OFFICER HIMSELF HAS NOTED AT PARA A(VIII) OF HIS OR DER THAT ASSESSEE HAD INDEED PURCHASED A LAND AT VENKATESHPURAM VILLA GE, TIRUVALLUR DISTRICT IN JANUARY, 2010 AND CLAIMED DEDUCTION UND ER SECTION 54G ON THIS PURCHASE. FURTHER, LD. CIT(APPEALS) HAD IN HIS ORDER AT PARA 6 CLEARLY STATED THAT CLAIM OF THE ASSESSEE UNDER SEC TION 54G WAS WITH REGARD TO SHIFTING FROM CHEMMENCHERY TO KOPPUR VILL AGE, TIRUVALLUR DISTRICT. THIS BEING SO, WE ARE UNABLE TO ACCEPT T HE ARGUMENT OF THE LEARNED D.R. THAT ASSESSEE HAD NEVER PUT THE CLAIM BEFORE THE ASSESSING OFFICER. WE CANNOT SAY ASSESSEES CLAIM WAS FOR SHIFTING ITS CHEMMENCHERY UNIT TO PUZAL UNIT. CIRCUMSTANTIA L EVIDENCE CLEARLY SHOW THAT ASSESSEE HAD ESTABLISHED AN INDUSTRIAL UN DERTAKING IN KOPPUR VILLAGE. I.T.A. NO. 637/MDS/13 25 24. THIS TAKES US TO THE LAST QUESTION WHETHER THE SALE AT CHEMMENCHERY AND ESTABLISHMENT OF UNDERTAKING AT KO PPUR, SATISFIED THE REQUIREMENT OF SHIFTING MENTIONED I N SECTION 54G OF THE ACT. SECTION 54G IS REPRODUCED HEREUNDER:- 54G. (1) SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), WHERE THE CAPITAL GAIN ARISES FROM THE TRANSFER OF A CAPITAL ASSET, BEING MACHINERY OR PLANT OR BUILDING OR LAND OR ANY RIGHT S IN BUILDING OR LAND USED FOR THE PURPOSES OF THE BUSINESS OF AN INDUSTR IAL UNDERTAKING SITUATE IN AN URBAN AREA, EFFECTED IN THE COURSE OF , OR IN CONSEQUENCE OF, THE SHIFTING OF SUCH INDUSTRIAL UNDERTAKING (HE REAFTER IN THIS SECTION REFERRED TO AS THE ORIGINAL ASSET) TO ANY A REA (OTHER THAN AN URBAN AREA) AND THE ASSESSEE HAS WITHIN A PERIOD OF ONE YEAR BEFORE OR THREE YEARS AFTER THE DATE ON WHICH THE TRANSFER TOOK PLACE, ( A ) PURCHASED NEW MACHINERY OR PLANT FOR THE PURPOSES OF BUSINESS OF THE INDUSTRIAL UNDERTAKING IN THE AREA TO WHICH THE SAID UNDERTAKING IS SHIFTED ; ( B ) ACQUIRED BUILDING OR LAND OR CONSTRUCTED BUILDING FOR THE PURPOSES OF HIS BUSINESS IN THE SAID AREA ; ( C ) SHIFTED THE ORIGINAL ASSET AND TRANSFERRED THE ES TABLISHMENT OF SUCH UNDERTAKING TO SUCH AREA; AND ( D ) INCURRED EXPENSES ON SUCH OTHER PURPOSE AS MAY BE SPECIFIED IN A SCHEME FRAMED BY THE CENTRAL GOVERNMENT FOR THE P URPOSES OF THIS SECTION, THEN, INSTEAD OF THE CAPITAL GAIN BEING CHARGED TO INCOME-TAX AS INCOME OF THE PREVIOUS YEAR IN WHICH THE TRANSFER T OOK PLACE, IT SHALL BE DEALT WITH IN ACCORDANCE WITH THE FOLLOWING PROV ISIONS OF THIS SECTION, THAT IS TO SAY, ( I ) IF THE AMOUNT OF THE CAPITAL GAIN IS GREATER THAN THE COST AND EXPENSES INCURRED IN RELATION TO ALL OR ANY OF THE PURPOSES MENTIONED IN CLAUSES ( A ) TO ( D ) (SUCH COST AND EXPENSES BEING HEREAFTER IN THIS SECTION REFERRED TO AS THE NEW AS SET), THE DIFFERENCE BETWEEN THE AMOUNT OF THE CAPITAL GAIN A ND THE COST OF THE NEW ASSET SHALL BE CHARGED UNDER SECTION 45 AS THE I.T.A. NO. 637/MDS/13 26 INCOME OF THE PREVIOUS YEAR ; AND FOR THE PURPOSE O F COMPUTING IN RESPECT OF THE NEW ASSET ANY CAPITAL GAIN ARISIN G FROM ITS TRANSFER WITHIN A PERIOD OF THREE YEARS OF ITS BEIN G PURCHASED, ACQUIRED, CONSTRUCTED OR TRANSFERRED, AS THE CASE M AY BE, THE COST SHALL BE NIL ; OR ( II ) IF THE AMOUNT OF THE CAPITAL GAIN IS EQUAL TO, OR LESS THAN, THE COST OF THE NEW ASSET, THE CAPITAL GAIN SHALL NOT B E CHARGED UNDER SECTION 45 ; AND FOR THE PURPOSE OF COMPUTING IN RESPECT OF THE NEW ASSET ANY CAPITAL GAIN ARISING FROM ITS TRANSFER WITHIN A PERIOD OF THREE YEARS OF ITS BEING PURCHAS ED, ACQUIRED, CONSTRUCTED OR TRANSFERRED, AS THE CASE MAY BE, THE COST SHALL BE REDUCED BY THE AMOUNT OF THE CAPITAL GAIN. A READING OF ABOVE WOULD SHOW THAT THE EXEMPTION AV AILABLE UNDER IT IS ON CAPITAL GAINS ARISING ON TRANSFER OF A CAPITA L ASSET WHICH CAN BE IN THE NATURE OF MACHINERY OR PLANT OR BUILDING OR LAND. TRANSFER GIVING RISE TO THE CAPITAL GAINS NEED NOT BE OF MACHINERY AND PLANT AND LAND AND BUILDING TOGETHER. THE REQUIREMENT IS SATISFIE D EVEN IF THERE IS ONLY A TRANSFER OF LAND. SECOND REQUIREMENT IS THA T SUCH TRANSFER HAS TO BE EFFECTED IN THE COURSE OF, OR IN CONSEQUENCE OF, SHIFTING OF THE INDUSTRIAL UNDERTAKING. THAT ASSESSEE HAD A UNIT A T CHEMMENCHERY IS CLEAR FROM THE BOILER ERECTION RENEWAL CERTIFICA TE DATED 4.5.2007 ISSUED BY DIRECTOR OF BOILERS, TAMIL NADU, WHICH IS ADDRESSED TO THE CHEMMENCHERY UNIT. ONCE IT IS ACCEPTED THAT ASSESS EE HAD SOLD ITS LAND IN CHEMMENCHERY, AND HAD NOT RETAINED ANY LAND OR BUILDING THERE, WE CANNOT SAY THAT ASSESSEE WAS STILL HAVING AN INDUSTRIAL UNDERTAKING THERE. SHIFTING MENTIONED IN THE SEC TION DOES NOT MEAN I.T.A. NO. 637/MDS/13 27 THAT THE NEW INDUSTRIAL UNDERTAKING ESTABLISHED IN THE NON-URBAN AREA SHOULD USE ONLY THE PLANT AND MACHINERY AND ITEMS T AKEN FROM THE TRANSFERRED AREA. EXEMPTION UNDER SECTION 54G IS A VAILABLE FOR PURCHASE OF NEW MACHINERY OR PLANT, ACQUISITION OF BUILDING OR LAND, CONSTRUCTION OF BUILDING, SHIFTING OF ORIGINAL ASSE T AS WELL AS EXPENSES INCURRED FOR THESE PURPOSES. ORIGINAL ASSET SOLD H ERE IS LAND, AND LAND IS NOT AMENABLE TO A SHIFTING. ASSESSEE HAD P URCHASED LAND AND ESTABLISHED AN UNDERTAKING IN KOPPUR VILLAGE. WHAT IS TO BE SEEN IS WHETHER ASSESSEE HAD ADHERED TO THE TIME-WINDOW ALL OTTED FOR THIS PURPOSE. SECTION PROVIDES FOR A TIME WINDOW OF FOU R YEARS STARTING FROM ONE YEAR PRIOR TO THE DATE OF TRANSFER AND END ING THREE YEARS AFTER THE DATE OF TRANSFER. HERE THE ACQUISITION O F PLANT AND MACHINERY WAS DONE AND THE LAND WAS ACQUIRED WITHIN THIS TIME -WINDOW. WE ARE, THEREFORE, OF THE OPINION THAT THE TRANSACTION OF SALE AT CHEMMENCHERY AND SETTING UP OF AN INDUSTRIAL UNDERT AKING AT KOPPUR VILLAGE SATISFIED THE REQUIREMENT OF SHIFTING MEN TIONED IN SECTION 54G OF THE ACT AND THE THIRD QUESTION ALSO HAS TO B E ANSWERED IN FAVOUR OF THE ASSESSEE. 25. THERE CAN BE NO DISPUTE THAT THE OBJECT OF ENAC TING SECTION 54G WAS TO DE-URBANISE AND REMOVE INDUSTRIES FROM POPUL ATED AREA AND PROMOTE INDUSTRIALIZATION IN UNDERDEVELOPED AREAS. SECTION 54G IS A I.T.A. NO. 637/MDS/13 28 PROVISION INTENDED FOR PROMOTING INCLUSIVE GROWTH O F THE COUNTRY. IN SUCH A SITUATION, GIVING A VERY NARROW INTERPRETATI ON TO THE SAID SECTION WILL DEFEAT THE VERY PURPOSE THEREOF. WE A RE THUS OF THE OPINION THAT THE ASSESSEE WAS ELIGIBLE FOR CLAIMING EXEMPTION UNDER SECTION 54G OF THE ACT. 26. GROUND NO.1 OF THE ASSESSEE STANDS ALLOWED. 27. VIDE ITS GROUND NO.2, GRIEVANCE RAISED BY THE A SSESSEE IS THAT ITS CLAIM FOR EXPENDITURE INCURRED ON CONSTRUCTION OF ROAD, WAS NOT ALLOWED. 28. FACTS APROPOS ARE THAT ASSESSEE HAD CLAIMED AN EXPENDITURE OF ` 22,10,07,155/- FOR CONSTRUCTION OF ROAD AT ITS CON TRACT WORK SITES AT RATNAGIRI, MAHARASHTRA AND TORANAGALLU, BELLARY, KA RANATAKA. ASSESSEE HAD ENTERED INTO SERVICE AND SUPPLY CONTRA CTS WITH M/S JSW ENERGY (RATNAGIRI) LIMITED (IN SHORT JSWERL) AN D M/S JSW ENERGY (VIJAYANAGAR) LIMITED, FOR ENGINEERING AND C ONSTRUCTION OF A 4 X 300 MEGAWATT THERMAL POWER PLANT AT JSWERL, RATNA GIRI DISTRICT, MAHARASHTRA AND 2 X 300 MEGAWATT THERMAL POWER PLAN T AT TORANAGALLU, BELLARY DISTRICT, KARNATAKA STATE. AS SESSEE HAD CLAIMED TEMPORARY ROAD CONSTRUCTION EXPENDITURE AT THESE SI TES, SINCE IT HAD TO MOVE HEAVY EQUIPMENT TO THE WORK SITES, WHICH WERE SITUATED IN I.T.A. NO. 637/MDS/13 29 REMOTE AREAS. AS PER THE ASSESSEE, SUCH ROAD CONST RUCTION WAS ENTRUSTED TO TWO PERSONS, NAMELY, ONE SHRI N. ERULA PPAN AND ONE SHRI S. KESAVAN. ASSESSING OFFICER MADE ENQUIRIES WITH SHRI N. ERULAPPAN AND SHRI S. KESAVAN, WHICH REVEALED THAT SHRI N. ERULAPPAN WAS A PETTY COTTON MERCHANT AND SHRI S. K ESAVAN WAS THE PRESIDENT OF A VILLAGE PANCHAYAT NOT PROFICIENT IN ANY CONTRACT WORK. SHRI S. KESAVAN WAS NOT EVEN ASSESSED TO TAX. AS P ER THE A.O., THESE PERSONS WERE RESIDING IN POLLACHI AND HAD NO CAPACITY TO EXECUTE CONTRACTS OF SUCH MAGNITUDE, THAT TOO AT UN KNOWN PLACES LIKE BELLARY AND RATNAGIRI. ASSESSING OFFICER IT SEEMS RECORDED STATEMENTS FROM THESE PERSONS, WHO ADMITTED THAT TH EY HAD NOT DONE ANY WORK OF THE NATURE MENTIONED. ACCORDING TO THE M, ONE SHRI M. NANDAKUMAR, VICE-PRESIDENT (PROJECTS) OF ASSESSEE-C OMPANY, HAD CONTACTED THEM DURING A MARRIAGE FUNCTION IN COIMBA TORE AND ASKED THEM TO ACCOMMODATE THE ASSESSEE. ASSESSING OFFICE R FOUND THAT BANK ACCOUNTS WERE OPENED IN THE NAME OF THESE PERS ONS AT ICICI BANK, POLLACHI. MONEY CREDITED IN SUCH ACCOUNTS WE RE WITHDRAWN AND GIVEN TO THE PERSONS IDENTIFIED BY SHRI M. NAND AKUMAR. AS PER THE A.O., THEY HAD ALSO DENIED ISSUING OF ANY INVOI CES AND ALSO STATED THAT SIGNATURES IN VARIOUS LETTERS PURPORTED TO HAV E BEEN WRITTEN BY THEM WERE NOT THEIR ACTUAL SIGNATURES. FURTHER, AS PER THE A.O., I.T.A. NO. 637/MDS/13 30 ASSESSEE NEVER CROSS-EXAMINED THESE PERSONS DESPITE OPPORTUNITY GIVEN. SHRI N. ERULAPPAN, ONE OF THE TWO PERSONS, WAS SHOWN BY THE ASSESSEE AS A CREDITOR FOR WHOLE OF THE CONTRACT AM OUNT. A.O. ALSO MADE ENQUIRIES WITH JSWERL AS TO WHETHER ANY ROAD C ONSTRUCTION WAS DONE BY THE ASSESSEE. THEY INFORMED THAT NO SU CH ROAD CONSTRUCTION WAS DONE BY THE ASSESSEE. HOWEVER, TH EY DID MENTION THAT ASSESSEE MIGHT HAVE CONSTRUCTED ROADS FOR EXEC UTION OF WORK. ASSESSING OFFICER REQUIRED THE ASSESSEE TO FILE ANY OTHER CREDIBLE PROOF FOR HAVING DONE ANY ROAD CONSTRUCTION WORK. ASSESSEE COULD FILE ONLY MEASUREMENT TAKEN BY AN ENGINEER SHOWING ABSTRACT QUANTITIES. HE THEREFORE CONCLUDED THAT THE CLAIM AS SUCH WAS BOGUS AND DISALLOWED THE SUM OF ` 22,10,07,155/-. 29. ASSESSEES APPEAL ON THIS ISSUE BEFORE CIT(APPE ALS), DID NOT MEET WITH ANY SUCCESS. ACCORDING TO THE LD. CIT(AP PEALS), EXCEPT FOR A LEDGER EXTRACT AND DOCUMENTS IN THE NATURE OF INV OICES RAISED BY THE TWO PERSONS, THERE WAS NOTHING TO SHOW ANY ROAD HAV ING BEEN CONSTRUCTED BY THE ASSESSEE. LD. CIT(APPEALS) REFU SED TO CONSIDER PICTURES OF ROAD LEVELING AND CONSTRUCTION WORK FIL ED BY THE ASSESSEE BEFORE HIM FOR THE REASON THAT IT WAS NEVER PRODUCE D BEFORE THE ASSESSING OFFICER. AS PER LD. CIT(APPEALS), ASSESS EE COULD NOT SHOW WHAT PREVENTED IT FROM PRODUCING SUCH EVIDENCE BEFO RE THE A.O. IN I.T.A. NO. 637/MDS/13 31 ANY CASE, ACCORDING TO LD. CIT(APPEALS), THE PICTUR ES DID NOT REVEAL THE LOCATION OF THE WORK OR THE DATES WHEN THE WORK WAS DONE. HE, THEREFORE, HELD THAT ASSESSING OFFICER WAS JUSTIFIE D IN DISALLOWING THE CLAIM. 30. NOW BEFORE US, LEARNED A.R., STRONGLY ASSAILING THE ORDERS OF AUTHORITIES BELOW, SUBMITTED THAT EVEN THOUGH SHRI N. ERULAPPAN AND SHRI S. KESAVAN HAD DENIED ANY RECEIPT OF MONEY FOR ROAD WORK FROM THE ASSESSEE, THE FACT REMAINED THAT ASSESSEE HAD C ONSTRUCTED ROADS IN BOTH THESE SITES. BOTH THESE PERSONS COULD NOT DENY THAT MONEY WAS CREDITED TO THEIR RESPECTIVE BANK ACCOUNTS. SU CH ACCOUNTS WERE OPERATED BY THEM, AND THEY HAD ALSO EFFECTED WITHDR AWALS THEREFROM. ACCORDING TO LEARNED A.R., ASSESSEE WAS ENTRUSTED W ITH ERECTION, COMMISSIONING AND BUILDING A PART OF THE LARGE THER MAL PLANTS AT RATNAGIRI AND BELLARY. THE AREA WAS INACCESSIBLE F OREST LAND AND ASSESSEE HAD TO START FROM THE SCRATCH. IT HAD TO CLEAR THE AREA, LEVEL IT, DEMARCATE IT AND THEN MAKE IT READY FOR CONSTRU CTION. VERY HEAVY EQUIPMENT HAD TO BE BROUGHT IN. IT WAS IMPOSSIBLE TO DO SUCH WORK WITHOUT CONSTRUCTING ROADS. RELYING ON PAPER-BOOK PAGES 394 AND 395, LEARNED A.R. SUBMITTED THAT HYDRAULIC CRANES, CRAWLER CRANES, TELESCOPIC CRANES, TRAILORS, TRUCKS, BUSES AND JEEP S HAD TO BE DEPLOYED AT THE SITES IN BOTH BELLARY AND RATNAGIRI . ASSESSEE HAD TO I.T.A. NO. 637/MDS/13 32 TRANSPORT EQUIPMENT TO THE SITES. THE CONTRACT SCO PE INCLUDED CREATING ACCESS WITH SUITABLE ROADS AND DRAINS. AS PER THE LEARNED A.R., PRESUMPTION TAKEN BY THE LOWER AUTHORITIES TH AT ASSESSEE HAD NOT CONSTRUCTED ANY ROAD AT ALL WAS INCORRECT. IF THAT WAS TAKEN TO BE TRUE, IT WOULD MEAN THAT ASSESSEE WAS NOT EXECUTING ANY WORK AT ALL. 31. PER CONTRA, LEARNED D.R., SUPPORTING THE ORDERS OF AUTHORITIES BELOW, SUBMITTED THAT BOTH FOR BELLARY AS WELL RATN AGIRI, LIST OF EQUIPMENT MOVED BY ROAD, PLACED BY THE ASSESSEE AT PAPER-BOOK PAGES 394 AND 395, WERE THE VERY SAME. AS PER LEAR NED D.R., THE SAME EQUIPMENT COULD NOT HAVE BEEN USED FOR BOTH TH E SITES, WHICH WERE DISPARATELY SITUATED. FURTHER ACCORDING TO HI M, NO DETAILS WERE GIVEN BY THE ASSESSEE REGARDING LENGTH OF ROAD CONS TRUCTED NOR THE TYPE OF ROAD CONSTRUCTED. THE QUALITY AND TYPE OF ROAD NOR THE QUANTITY OF MATERIALS USED FOR CONSTRUCTING SUCH RO ADS WERE PRODUCED. EVIDENCE PRODUCED WERE PROVED BY THE A.O. TO BE FAB RICATED ONES. THE CONSTRUCTION OF ROAD, ACCORDING TO HIM, WAS NOT HING BUT A COCK AND BULL STORY. NO PRESUMPTION COULD BE TAKEN THA T ASSESSEE HAD CONSTRUCTED ANY ROAD WITHOUT PROPER EVIDENCE. CLAI M WAS THEREFORE RIGHTLY REJECTED BY THE A.O. AS PER THE LEARNED D. R., NOTHING STOPPED THE ASSESSEE FROM PRODUCING THE EVIDENCE IN THE NAT URE OF PHOTOS I.T.A. NO. 637/MDS/13 33 BEFORE THE A.O. AND HENCE THESE WERE RIGHTLY REJECT ED BY THE LD. CIT(APPEALS). 32. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. ASSESSEE HAD CLAIMED BEFORE THE A.O. THAT IT HAD IN CURRED ROAD CONSTRUCTION EXPENDITURE OF ` 22,10,07,155/- THROUGH TWO SUB- CONTRACTORS, NAMELY, SHRI N. ERULAPPAN AND SHRI S. KESAVAN. BOTH THE PERSONS DENIED HAVING DONE ANY SUCH WORK. THEY ALSO DENIED THEIR SIGNATURES. THEY ALSO STATED THAT MONEY CRED ITED IN THE ACCOUNTS WITH ICICI WERE DISTRIBUTED BY THEM TO THE PERSONS NOMINATED BY SHRI M. NANDAKUMAR, VICE-PRESIDENT (PR OJECTS) OF THE ASSESSEE-COMPANY. NEVERTHELESS, IT REMAINS A FACT THAT MONEY PAID BY ASSESSEE-COMPANY WERE CREDITED IN THE BANK ACCOU NTS OPENED AND OPERATED BY SHRI N. ERULAPPAN AND SHRI S. KESAV AN. WITH BANKS STRICTLY ADMINISTERING THE KYC NORMS, WE CANNOT SAY THAT THEIR TRUE IDENTITIES WERE NOT KNOWN TO THE BANK. HOWEVER, IN THE FACE OF THEIR ADMISSION BEFORE THE A.O. THAT THEY HAD NOT DONE AN Y WORK BY THEMSELVES, AND ALSO THE REFUSAL OF ASSESSEE TO CRO SS EXAMINE THEM, WE CANNOT FAULT THE ASSESSING OFFICER FOR REJECTING THE EVIDENCE PRODUCED FOR THE CLAIM, AS UNRELIABLE. AT THE SAME TIME, WE CANNOT BRUSH ASIDE THE FACT THAT ASSESSEE WAS DOING SUBSTA NTIAL CONTRACT WORK FOR ESTABLISHING THERMAL POWER PLANTS AT RATNA GIRI AND BILLARY. I.T.A. NO. 637/MDS/13 34 THERE CAN BE NO CASE FOR THE REVENUE THAT ASSESSEE HAD NOT DONE ANY WORK IN THESE PLACES SINCE CONTRACT RECEIPTS FR OM M/S JSWERL WERE REFLECTED IN ITS ACCOUNTS. NONE OF THE AUTHOR ITIES BELOW HAVE DOUBTED THE CLAIM OF THE ASSESSEE THAT IT HAD TO ST ART WORK FROM SCRATCH. FOR BUILDING A THERMAL POWER PLANT, IT IS ESSENTIAL TO MOVE IN HEAVY EQUIPMENT. TEMPORARY ROADS HAVE TO BE LAID A ND SUCH ROADS NECESSARILY HAD TO HAVE CAPACITY TO CARRY HEAVY EQU IPMENT TO THE SITE. EVEN M/S JSWERL HAVE STATED THAT ASSESSEE MIGHT HAV E CONSTRUCTED TEMPORARY ROADS FOR THE EXECUTION OF WO RK. ASSESSEE HAD ALSO FILED CERTAIN MEASUREMENTS TAKEN BY AN ENG INEER BEFORE THE ASSESSING OFFICER, WHICH HE REFUSED TO CONSIDER. T HE AREAS IDENTIFIED FOR THE PROJECT HAD TO BE BROUGHT TO A SHAPE WHERE WORK COULD BE STARTED, BUILDINGS COULD BE CONSTRUCTED AND PLANT A ND MACHINERY SET UP. TO SAY THAT ASSESSEE HAD NOT LAID ANY TEMPORAR Y ROADS FOR ACCESS, FOR MOVING IN MACHINERY, WILL BE EQUIVALENT TO SAYING THAT ASSESSEE HAD NEVER DONE ANY WORK ON THE PROJECT. A DMITTEDLY ASSESSEE HAD DONE SUBSTANTIAL WORK AND RECEIVED PAY MENTS AS WELL. IN SUCH A SITUATION, TO DENY THE WHOLE OF THE CLAIM OF EXPENDITURE FOR LAYING THE ACCESS ROADS TO THE PROJECT SITES, FOR A REASON THAT PERSONS ENGAGED BY THE ASSESSEE FOR DOING THE WORK, WERE NO T COMPETENT OR HAD DENIED RECEIPT OF MONEY, WOULD, IN OUR OPINION, BE UNFAIR. NOW I.T.A. NO. 637/MDS/13 35 THE QUESTION ARISES AS TO WHAT WOULD BE THE FAIR AM OUNT THAT COULD BE CONSIDERED AS EXPENDITURE FOR LAYING SUCH ROADS AGA INST RS 22,10,07,155/- CLAIMED BY THE ASSESSEE. WHEN ASSES SEE ADOPTED AN UNFAIR MEANS TO CREATE EVIDENCE FOR THE OUTGO, T HERE IS EVERY POSSIBILITY THAT IT WOULD HAVE PREFERRED AN EXAGGER ATED CLAIM. OBVIOUS COURSE IN SUCH A SITUATION WILL BE TO SEND THE MATTER BACK TO THE ASSESSING OFFICER FOR ESTIMATING THE EXPENDITUR E ON ROADS BASED ON A VALUATION REPORT OF AN APPROVED VALUER. BUT, HERE THE PROJECT HAD STARTED IN APRIL, 2008 AND WOULD HAVE SIGNIFICANTLY PROGRESSED BY NOW. TEMPORARY ROADS EARLIER LAID, WOULD NO MORE B E THERE AND WOULD HAVE BEEN REPLACED BY PUCCA APPROACHES AND BU ILDINGS. IN SUCH A SITUATION, A REMAND FOR ASCERTAINING THE ACT UAL OUTGO MAY NOT SERVE ANY PURPOSE. HENCE TO GIVE A QUIETUS TO THE ISSUE, WE ARE OF THE OPINION THAT A DISALLOWANCE OF 25% ON THE TOTAL CLAIM OF ` 22,10,07,155/- WILL SERVE THE ENDS OF JUSTICE. WE, THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THE ISSUE AN D DIRECT THE A.O. TO DISALLOW ` 5,52,51,790/- OUT OF THE TOTAL CLAIM OF ` 22,10,07,155/- ON ROADS, AND ALLOW THE BALANCE. 33. GROUND NO.2 OF THE ASSESSEE IS PARTLY ALLOWED. I.T.A. NO. 637/MDS/13 36 34. VIDE ITS GROUND NO.3, ASSESSEE IS AGGRIEVED ON A DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT, WHICH WAS CONFIR MED BY THE CIT(APPEALS). 35. FACTS APROPOS ARE THAT ASSESSEE HAD ENTERED INT O A CONTRACT WITH ONE M/S GULF SPIC ENGINEERING (LLC), DUBAI, FO R MASS ALKALI FLUSHING WORK OF BOILER UNIT OF JSWERL, TORANGALLU, KARNATAKA. ASSESSEE HAD NOT DEDUCTED ANY TAX ON PAYMENTS EFFEC TED BY IT. ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN WHY THE EXPENSES OF ` 3,84,96,230/- CLAIMED FOR SUCH WORK, SHOULD NOT BE DISALLOWED. REPLY OF THE ASSESSEE WAS THAT THE WORK WAS SUB-CON TRACTED BY M/S GULF SPIC ENGINEERING (LLC), DUBAI, TO TWO INDIAN C OMPANIES, NAMELY, M/S FAIRLINE SHIPPING SERVICES LTD. AND M/S AMS ENTERPRISES. M/S GULF SPIC ENGINEERING (LLC), DUBA I, HAD REQUIRED THE ASSESSEE TO MAKE THE PAYMENTS DIRECTLY TO THESE TWO COMPANIES. ACCORDINGLY, ASSESSEE HAD DIRECTLY PAID THESE TWO P ARTIES AND WHEN SUCH PAYMENTS WERE EFFECTED, TAX WAS DEDUCTED AT SO URCE. THEREFORE, ACCORDING TO THE ASSESSEE, THERE WAS NO QUESTION OF ANY DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT. IN SUPPORT IT SEEMS, ASSESSEE HAD FILED COPIES OF CORRESPONDENCE, WORK O RDERS AND LEDGER EXTRACTS. I.T.A. NO. 637/MDS/13 37 36. HOWEVER, THE A.O. WAS NOT IMPRESSED. ACCORDING TO HER, ORIGINAL WORK ORDER DATED 2.6.2008 WAS ISSUED TO M/ S GULF SPIC ENGINEERING (LLC), DUBAI. M/S GULF SPIC ENGINEERIN G (LLC), DUBAI, VIDE ITS LETTER DATED 14.6.2008 AND 15.6.2008, REQU IRED THE ASSESSEE TO ENTRUST THE WORK TO M/S FAIRLINE SHIPPING SERVIC ES LTD. AND M/S AMS ENTERPRISES RESPECTIVELY AND DEBIT THE AMOUNTS PAID TO THEM, FROM THEIR INVOICES. AS PER THE A.O., THE SUB-CONT RACTING WAS NOT DONE BY THE ASSESSEE. IT WAS M/S GULF SPIC ENGINEE RING (LLC), DUBAI THAT SUB-CONTRACTED THE WORK TO M/S FAIRLINE SHIPPING SERVICES LTD. AND M/S AMS ENTERPRISES. LEDGER EXTRACTS PROD UCED BY THE ASSESSEE SHOWED THAT IT HAD EFFECTED PAYMENTS TO TH E SAID TWO COMPANIES, AFTER DEDUCTING TDS, ON BEHALF OF M/S GU LF SPIC ENGINEERING (LLC), DUBAI. M/S GULF SPIC ENGINEERIN G (LLC), DUBAI HAD RAISED AN INVOICE ON THE ASSESSEE ON 6.10.2008 FOR WHOLE OF THE WORK. THUS, ACCORDING TO HIM, ASSESSEE HAD EFFECTE D PAYMENTS TO A NON-RESIDENT COMPANY WITHOUT DEDUCTING TAX AT SOURC E. HE, THEREFORE, APPLIED SECTION 40(A)(I) OF THE ACT AND DISALLOWED THE CLAIM OF ` 3,84,96,230/-. 37. IN ITS APPEAL BEFORE CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT M/S GULF SPIC ENGINEERING (LLC), DUBAI, TH EMSELVES HAD REQUIRED THE ASSESSEE TO HIRE THE SUB-CONTRACTORS A ND GET THE WORK I.T.A. NO. 637/MDS/13 38 EXECUTED IN INDIA. ASSESSEE HAD EMPLOYED M/S FAIRL INE SHIPPING SERVICES LTD. AND M/S AMS ENTERPRISES FOR THIS PURP OSE. PAYMENTS WERE EFFECTED TO THESE PARTIES AFTER DEDUCTING TAX AND SUCH TAX DEDUCTED WAS REMITTED TO THE GOVERNMENT ACCOUNT. I N ANY CASE, AS PER THE ASSESSEE, THE AMOUNT STOOD PAID DURING THE RELEVANT PREVIOUS YEAR ITSELF AND THEREFORE, SECTION 40(A)(I) COULD N OT BE APPLIED IN VIEW OF THE DECISION OF SPECIAL BENCH IN THE CASE OF MER ILYN SHIPPING AND TRANSPORT V. ACIT (2012) 16 ITR (TRIB.) 1 (SB). 38. LD. CIT(APPEALS) WAS NOT IMPRESSED BY ANY OF TH E ABOVE CONTENTIONS. ACCORDING TO HIM, WORK ORDER WAS ISSU ED TO A NON- RESIDENT COMPANY. INVOICE FOR THE WORK WAS RAISED BY THE NON- RESIDENT COMPANY. THEREFORE, INCOME FOR THE NON-RE SIDENT COMPANY ACCRUED IN INDIA. THOUGH THE SAID WORK WAS SUB-CON TRACTED TO TWO INDIAN ENTITIES, THIS WAS DONE ON BEHALF OF THE NON -RESIDENT COMPANY. ASSESSEE WAS OBLIGED TO DEDUCT TAX ON PAYMENTS EFFE CTED TO THE NON- RESIDENT COMPANY. THEREFORE, ACCORDING TO HIM, ASS ESSEE FAILED TO COMPLY WITH PROVISIONS OF SECTION 194C OF THE ACT. INSOFAR AS RELIANCE PLACED ON THE DECISION OF MERILYN SHIPPIN G AND TRANSPORT (SUPRA) WAS CONCERNED, LD. CIT(APPEALS) HELD THAT T HE SAID DECISION STOOD STAYED BY HONBLE ANDHRA PRADESH HIGH COURT V IDE ITS ORDER DATED 8.10.2012. HE THUS CONFIRMED THE DISALLOWANC E. I.T.A. NO. 637/MDS/13 39 39. NOW BEFORE US, LEARNED A.R. SUBMITTED THAT ASSE SSEE HAD GIVEN DETAILS OF EXPENDITURE TO THE ASSESSING OFFICER THR OUGH ITS LETTER DATED 8 TH DECEMBER, 2011, COPY OF WHICH HAS BEEN PLACED AT P APER-BOOK PAGES 12 TO 18. ACCORDING TO HIM, M/S GULF SPIC EN GINEERING (LLC), DUBAI, TO WHICH THE WORK WAS AWARDED, HAD ON RECEIP T OF ORDER, REQUIRED THE ASSESSEE TO IDENTIFY SUB-CONTRACTORS F OR EXECUTION OF THE JOB. ASSESSEE HAD IDENTIFIED TWO COMPANIES WHO COU LD DO THE WORK IN INDIA. ASSESSEE HAD DIRECTLY ISSUED WORK ORDERS TO THESE PARTIES. M/S GULF SPIC ENGINEERING (LLC), DUBAI HAD AUTHORIZ ED ASSESSEE TO MAKE PAYMENTS DIRECTLY TO LOCAL CONTRACTORS. TERMS OF PAYMENT MENTIONED THAT 100% PAYMENT WAS TO BE MADE AGAINST SUBMISSION OF INVOICE BY SUCH PARTIES. TAX WAS DEDUCTED AT THE R ATE MENTIONED IN SECTION 194C ON THE PAYMENTS EFFECTED TO SUCH CONTR ACTORS. ACCOUNT OF M/S GULF SPIC ENGINEERING (LLC), DUBAI WAS DEBIT ED. AS PER LEARNED A.R., THERE WAS NO FURTHER REMITTANCE TO M/ S GULF SPIC ENGINEERING (LLC), DUBAI AND FOR PAYMENTS MADE TO I NDIAN ENTITIES, TAX WAS DEDUCTED. 40. PER CONTRA, LEARNED D.R., STRONGLY SUPPORTING T HE ORDERS OF AUTHORITIES BELOW, SUBMITTED THAT ASSESSEE HAD DEBI TED THE AMOUNT IN THE ACCOUNT OF M/S GULF SPIC ENGINEERING (LLC), DUB AI. IT WOULD ONLY I.T.A. NO. 637/MDS/13 40 SHOW THAT THE AMOUNTS WERE EARLIER CREDITED TO M/S GULF SPIC ENGINEERING (LLC), DUBAI. ASSESSEE HAD NOT DEDUCTE D TAX AT SOURCE AS REQUIRED UNDER SECTION 194C OF THE ACT. THEREFO RE, ACCORDING TO HIM, RIGOURS OF SECTION 40(A)(I) STOOD ATTRACTED. 41. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE THAT THE ORIGINAL WORK ORDER WA S GIVEN BY THE ASSESSEE TO M/S GULF SPIC ENGINEERING (LLC), DUBAI. IT IS ALSO AN ADMITTED POSITION THAT THE WORK WAS EVENTUALLY DONE BY TWO INDIAN CONCERNS, NAMELY, M/S FAIRLINE SHIPPING SERVICES LT D. AND M/S AMS ENTERPRISES. M/S GULF SPIC ENGINEERING (LLC), DUBA I HAD THEMSELVES ASKED THE ASSESSEE TO IDENTIFY PERSONS IN INDIA FOR DOING THE WORK. ASSESSEE HAD ACCORDINGLY IDENTIFIED TWO INDIAS CON CERNS AND PLACED WORK ORDER ON THEM. REVENUE HAS NOT DISPUTED THE C ONTENTION OF THE ASSESSEE THAT WHEN PAYMENTS WERE EFFECTED BY IT TO M/S FAIRLINE SHIPPING SERVICES LTD. AND M/S AMS ENTERPRISES, TAX WAS DEDUCTED AT SOURCE IN ACCORDANCE WITH SECTION 194C OF THE AC T. ASSESSING OFFICER HAD FASTENED A DISALLOWANCE UNDER SECTION 4 0(A)(I) BY RELYING ON SECTION 195 OF THE ACT. AT THIS JUNCTURE, A REA DING OF SECTION 195 IS REQUIRED. SECTION 195 IS REPRODUCED HEREUNDER:- 195. [(1) ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RE SIDENT, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY I NTEREST OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS A CT (NOT BEING I.T.A. NO. 637/MDS/13 41 INCOME CHARGEABLE UNDER THE HEAD SALARIES SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE O R AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHE QUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME-TAX THEREON AT THE RATES IN FORCE THE SAID SECTION CAN BE APPLIED ONLY ON A PERSON RE SPONSIBLE FOR PAYING TO A NON-RESIDENT ANY SUM WHICH IS CHARGEABL E UNDER THE ACT. HERE, ADMITTEDLY, ASSESSEE HAD NOT DIRECTLY PAID AN Y AMOUNT TO THE NON-RESIDENT. PAYMENTS WERE EFFECTED BY THE ASSESS EE ONLY TO THE TWO INDIAN CONCERNS. WHEN SUCH PAYMENTS WERE EFFEC TED, ASSESSEE HAD INDEED DEDUCTED TAX AT SOURCE AS MENTIONED UNDE R SECTION 194C OF THE ACT. SECTION 194C APPLIED TO PAYMENTS MADE TO A RESIDENT CONTRACTOR. WHEN THE ASSESSEE NEVER EFFECTED ANY P AYMENT TO M/S GULF SPIC ENGINEERING (LLC), DUBAI AND HAD UNDER TH EIR INSTRUCTION GIVEN WORK ORDERS TO TWO INDIAN COMPANIES, AND MADE PAYMENTS DIRECTLY TO SUCH INDIAN CONCERNS, AFTER DEDUCTING T AX AT SOURCE, WE CANNOT SAY THAT ASSESSEE HAD FAILED TO DEDUCT TAX A T SOURCE. ASSESSEE HAD EFFECTED DEDUCTION OF TAX AS STIPULATE D UNDER SECTION 194C AND REMITTED IT TO GOVERNMENT ACCOUNT. THIS H AS NOT BEEN DISPUTED. THERE IS NO FINDING BY ANY OF THE LOWER AUTHORITIES THAT M/S GULF SPIC ENGINEERING (LLC), DUBAI HAD DONE ANY WOR K FOR THE ASSESSEE, FOR WHICH ASSESSEE WAS OBLIGED TO MAKE AN Y PAYMENTS. IN ANY CASE, IN SUCH CIRCUMSTANCES, ASSESSEE HAD REASO NABLE GROUNDS I.T.A. NO. 637/MDS/13 42 TO HAVE A BONAFIDE BELIEF THAT THE PAYMENTS EFFECTE D TO M/S FAIRLINE SHIPPING SERVICES LTD. AND M/S AMS ENTERPRISES DID NOT ATTRACT SECTION 195 OF THE ACT. IT COULD NOT BE FAULTED FO R FAILURE TO DEDUCT TAX AT SOURCE AS MENTIONED IN SECTION 195 OF THE ACT, S INCE THE WORK WAS DONE ONLY BY M/S FAIRLINE SHIPPING SERVICES LTD. AN D M/S AMS ENTERPRISES AND NOT BY M/S GULF SPIC ENGINEERING (L LC), DUBAI. WE ARE, THEREFORE, OF THE OPINION THAT ASSESSEE COULD NOT BE HELD LIABLE FOR ANY FAILURE FOR NON-DEDUCTION OF TAX AT SOURCE. DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT THEREFORE STANDS DELETE D. 42. GROUND NO.3 OF THE ASSESSEE STANDS ALLOWED. 43. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D PRO TANTO . ORDER WAS PRONOUNCED IN THE COURT ON MONDAY, THE 23 RD OF SEPTEMBER, 2013, AT CHENNAI. SD/- SD/- (V.DURGA RAO) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 23 RD SEPTEMBER, 2013. KRI. COPY TO: APPELLANT/RESPONDENT/CIT(A)-V, CHENNAI-34 / CIT, CHENNAI-III, CHENNAI/D.R./GUARD FILE