Case Law Details
IN THE ITAT AMRITSAR BENCH
FIL Industries Ltd.
v.
Additional Commissioner of Income-tax
IT Appeal No. 415 (Asr.) of 2009
[Assessment year 2005-06]
June 27, 2012
ORDER
Per Bench – This appeal of the assessee arises from the order of the CIT(A), Bhatinda, dated 29.07.2009 for the assessment year 2005-06.
2. The assessee has raised following grounds of appeal:
“1. The learned CIT(A) has grossly erred both on facts and in law, in confirming the order of assessment dated 31.12.2007 framed by the Additional Commissioner of Income Tax, Range-3, Srinagar.
2. That in confirming the order of assessment, the Ld. CIT(A) has completely over-looked that the income computed by the AO of Rs. 8,13,84,066/- had been arbitrarily computed, when the deductions claimed u/s 80IB of the Act had been disallowed by misapplication of the statutory provisions as contained in section 80IB of the Act ( more particularly sub-section (2) of section 80IB ) as against an income returned by the assessee company of Rs. 79,95,090/-.
3. That, Ld. CIT(A) has failed to comprehend the factual substratum of the case and has further overlooked that, the ld. AO had erred in disallowing the claim of deduction made u/s 80IB(1) of the Act, of a sum of Rs. 7,01,56,903/- in respect of two separate and independent undertakings, set up by the assessee company, (which undertakings were separate and independent and could not regarded as those, which can be held to have been framed by splitting up on the reconstruction of the business already in existence, or had been formed by the transfer of a new business of machinery or plant used for any purpose). The denial of deduction, when there had been no violation or infringement of the statutory provisions of law was highly arbitrary, rendering the order of the assessment as unsustainable in law.
3.1 That, Ld. CIT(A) has failed to comprehend that the two undertakings ( in respect of which the deduction u/s 80IB had been claimed) though were situated on the same plot of land, (where its old undertaking I, was situated), yet were independent and had been set up with the new plant and machinery, in the years 1999 and 2003. Further, the undertaking set up in the year 2003 was also involved in the manufacture of spray oils, besides pesticides, which was not being manufactured and produced by the undertaking set up in the year 1995, or even in the year 1999.
3.2 That, Ld. CIT(A) has failed to appreciate that the assessee had been allowed the deductions, in respect of the said two separate undertakings which had been set up in the yeas 1999 and 2003, in the preceding year(s) and there was thus absolutely no valid jurisdiction or basis to disallowed the claim of deduction on the factors and on the basis, which are wholly irrelevant for the purpose of claim and allowance of deduction u/s 80IB of the Income Tax Act.
3.3 That the purported factual findings recorded by the AO and Ld. CIT(A) in their respective orders are arbitrary besides being contrary to facts on record and were based on misconception of facts.
3.4 That both the Ld. CIT(A) and the A.O. have failed to appreciate that each undertaking was situated in separate and independent buildings despite the fact that the plot of land on which the said undertakings had been set up could be regarded as are:
3.5 That, Ld. CIT(A) has failed to appreciate that the assessee had maintained separate books of accounts and such books of accounts are maintained were sufficient to establish that the each of the three undertakings were separate and independent undertakings.
3.6 That, Ld. CIT(A) has failed to comprehend and appreciate that there is no requirement which provides that each separate undertakings to have separate Sales Tax Registration, separate Excise Registration, separate Power and Electricity Connection or even the separate manufacturing licence number etc., as were the sole basis on which the claim of deduction made u/s 80IB of the Act was not granted by the AO. That the fact the assessee company could not in law ever obtained such registrations as has been assumed by the Ld. A.O.
3.7 That, each of the findings recorded by the A.O. and confirmed by the CIT(A) have been reached without application of mind and the impugned order of CIT(A) has been passed by merely extracting the submissions of the assessee company, comments of the AO in the appellate order and that too, without analyzing either factual or legal position and as such, the disallowance sustained is highly arbitrary and without any valid basis.
3.8. That, Ld. CIT(A) has further erred in relying upon the comments of the AO ( not a remand report as stated in the order) which were based upon such of the material which had not been made the basis for making the assessment and the comments were based on the survey proceedings, which was in the nature of “fresh evidence” and/or material. In fact, the survey had been conducted subsequent to the assessment and the alleged evident gathered could not be made use in the appellate proceedings. As held by the Rajasthan High Court in the case of CIT v. Rao Raja Hanut Singh reported in 252 ITR 528 as such the purported and alleged evidence could not have been used by the ld. CIT(A). That in any case and without prejudice the alleged evidence was no evidence and no adverse inference could have been drawn on the purported evidence/material.
3.9. That the Ld. CIT(A) has erred in placing heavy reliance on the report of the handwriting expert appointed by the AO in preference to the report of handwriting expert by the assessee. He ought to have referred the difference to be resolved by third handwriting expert in any case, so as to conclude that the Auditors Report has not been preferred by Sh. K.S. Aggarwal.
4. That the order of the Ld. CIT(A) is a vitiated order in law, since it is made on non consideration of material evidence, as placed by the assessee and also by ignoring the detailed submissions made by the assessee company. On the contrary the findings have been reached as extraneous and inadmissible purported evidence.
5. That further, without prejudice the Ld. CIT(A) has further erred in sustaining the disallowance of the claim of deduction u/s 80IB of the Act of Rs. 3,10,11,113/- in respect of refund of excise duty.
5.1 That the Ld. CIT(A) has failed to appreciate that once the excise duty has not been included in total turnover, the refund of excise duty could not be included in the total income and as such, there was no justification not to have allowed the claim of the assessee, as made in respect of refund of Excise Duty.
6. That the Ld. CIT(A) has further erred in sustaining similarly the claim of deduction made u/s 80IB(IA) of the Act in respect of a sum of Rs. 11,58,611/- without any valid basis and/or jurisdiction.
7. That without prejudice to the aforesaid the Ld. CIT(A) has overtly relied upon the statement of Sh. Aditya Agarwal son of the Ld. CA Sh. K.S. Aggarwal of the assessee, in concluding that neither the accounts were audited nor any audit report was furnished. The said CA has been admittedly been auditing the books of accounts, since the assessment year 2000-01.
7.1 That without prejudice to the aforesaid the Ld. CIT(A) had not granted fair, valid & proper opportunity to the assessee to cross examine the ld. CA Sh,. K.S. Aggarwal, who had allegedly stated that he had not furnished any such audit report. In fact, the alleged denial made by him in his survey proceedings could not be used as evidence, against the assessee, since the said statement was not confronted to the assessee for its rebuttal in accordance with law.
8. That the Ld. CIT(A) has erred in sustaining the disallowance of expenditure incurred when he has failed to appreciate that, the aggregate expenditure incurred when he has failed to appreciate that, the aggregate expenditure of Rs.8,88,046/- was on account of Directors Foreign Travelling expenses, which expenditure had been incurred by the assessee in the course of his business and was thus allowable deduction. The findings that the assessee has failed to establish the purpose of visit and that it had not been incurred for the purpose of business, is entirely misconceived and is incorrect and has arbitrarily been made.
8.1 That the ld. CIT(A) has failed to appreciate that the disallowance made was pre-mediated as no opportunity whatsoever was granted to the assessee company before making the disallowance.
9. That the ld. CIT(A) has erred, in holding that the claim of depreciation aggregating to Rs.11,43,293/- was excessively made. He has failed to appreciate that the AO had unilaterally held the ‘plant’ as ‘building’ and before so concluding the AO had provided no opportunity whatsoever that the alleged building was plant and as such the findings there was an excessive claim made was based on arbitrary findings, which are unsustainable in law.
10. That the Ld. CIT(A) has further erred in sustaining the addition of Rs. 42,123/- which sum had actually been paid by the assessee towards employee’s contribution to Provident fund, within the time i.e. before furnishing the return of income and as such, such an amount was allowable deduction and could not have been treated as income u/s 2(24)(x), read with section 36(1)(va) of the Act.
11. That the ld. CIT(A) has further erred in confirming the levy of interest charged u/s 234B of the Act, which was not leviable.
It is therefore prayed that it be held that the order of assessment had arbitrarily been made and was totally unjustified, untenable and had been made without following the settled principles of natural justice and the well settled legal principles, in respect of deduction allowable u/s 80IB of the Act and the ld. CIT(A) has further erred without giving specific findings in sustaining the disallowances and confirming the assessment and that too, in respect of an assessment which had not been made not in accordance with law.
It is, therefore, prayed that the appeal of the assessee be allowed and it is held that the income returned by the assessee deserved to be accepted as such.”
3. At the outset, the Ld. counsel for the assessee, Sh. C.S. Aggarwal, Advocate, raised an additional ground being a legal ground for consideration of admission by the Bench, in view of the decision of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd v. CIT reported in 229 ITR 383. The additional ground raised by the ld. Counsel, Sh. C.S. Aggarwal, Advocate, on behalf of the assessee is as under:
“That the learned Assessing Officer has erred both in law and, on facts in not setting off the loss of Rs. 5,33,53,582/- of the 100% Export Oriented Undertaking at Srinagar while determining the total income of the assessee company at Rs. 8,13,84,067/- in the order of assessment u/s 143(3) of the Act dated 31.12.2007.”
3.1 It was argued by the ld. counsel for the assessee, Sh,. C.S. Aggarwal that loss incurred of Rs. 5,33,53,582/- by the 100% Export Oriented Undertaking at Srinagar is eligible to be set off while determining the total income of the assessee-company. The ground being purely legal in nature and therefore, should be admitted at the stage of the proceedings itself, in view of the judgments in the case of National Thermal Power Co. Ltd. v. CIT reported in 229 ITR 383 (SC) and CIT v. Varas International (P) Ltd. reported in 284 ITR 80 (SC), stated hereinabove.
3.2 In brief, the facts submitted by the Ld. counsel for the assessee that the assessee had furnished Income-tax return alongwitth audited annual accounts and Profit & Loss account. The profit as per P & L account was Rs. 7,74,23,146/- whereas while computing the income for the Income-tax purposes, the assessee computed its income from Net profit as per profit & loss account on the basis of Net profit at Rs. 9,87,68,564/- and there was a difference of Rs. 2,13,45,418/-. The said sum was demonstrated by the ld. counsel from the paper book filed by the assessee that includes Rs. 1,30,43,418/- being the loss from 100% exported oriented unit and balance of Rs. 83,21,960/- from Meat Export division. The said Rs. 1,30,43,418 was not claimed by the assessee. It was argued that instead of Rs. 1,30,43,458/-, the loss which was to be allowed was Rs. 5,33,53,582/-being the difference in the rates of depreciation as per Income-tax Act and Companies Act. The set off of loss of Rs. 1,30,43,458/- was not claimed by the assessee for the reason that income of the assessee was exempt. It was argued by the ld. counsel for the assessee, Mr. C.S. Aggarwal, Advocate that the claim made by the assessee is supported by the decision of ITAT, Mumbai Bench in the case of Navin Bhart Industries Ltd. v. DCIT reported in 90 ITD 1 and in the case of CIT v. Galaxy Surfactants Ltd. 69 DTR 42 (ND). The Ld. counsel for the assessee argued that all the facts in the present claim were on record before both the authorities below. It was argued by the ld. counsel that as per Circular of CBDT dated 11.04.1955, the correct income has to be computed. The Ld. counsel for the assessee relied upon the decision in the case of Income Tax Officer v. Ch. Atchaiah (SC) reported in 218 ITR 239.
4. On the other hand, Mr. Girish Dave, the Ld. counsel appearing for the Revenue submitted that the return of income was filed on 21st March, 2006 and is a belated return. These facts were not brought to the notice of AO and the Ld. CIT(A) and therefore, any of the authorities below cannot allow the claim. It was argued by Mr. Girish Dave, the ld. counsel for the Revenue that this claim has been raised for the first time before this Bench and therefore if admitted the matter should go back to the file of the AO. Merely making statement, additional evidence cannot be admitted and if it is a revised claim then Revenue’s claim is covered by the decision of Hon’ble Supreme Court in the case of Gotez (India) Ltd. reported in 284 ITR 323 and the assessee was required to file the revised return, which has not been filed by the assessee.
5. We have heard both the parties at length and perused the facts of the case. We are of the view that ground raised by the ld. counsel for the assessee, Mr. C.S. Aggarwal, Advocate, on behalf of the assessee is a legal ground in view of the decision of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (supra), wherein it has been held that where the facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. In view of the decision of Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (supra), we admit the additional ground. Raised by the assessee.
6. Ground No.1 is general in nature and therefore, does not require any adjudication.
7. As regards ground Nos. 2, 3, 3.1 to 3.9, 4,7 and 7.1, the brief facts are that the assessee filed its return of income on 21.03.2006 declaring total income of Rs. 79,95,090/-. The assessee has claimed to be engaged in the business of manufacturing of Pesticides and Agro Products at its three units which are based at Jammu. The assessee has claimed deduction u/s 80IB of the Act from its three units engaged in the above activity as under:
| “Unit | % age of Deduction | Year of operation | Amt. of deduction |
| Unit-1, Jammu | NIL | 11th year | Nil |
| Unit-2, Jammu | 30% | 6th year | Rs.49,48,809/- |
| Unit-3, Jammu.` | 100% | 2nd year | Rs.6,52,08,094/- |
The above details have also been furnished by the assessee through the letter of the Counsel dated 12.10.2007.
All the above units are claimed to be operating their industrial undertaking from Lane No.4, Phase-2, SIDCO Industrial Complex, Bari Brahamana, Jammu. As per Form No. 10CCB filed AO observed for FIL Industries Ltd. (Jammu Unit-2) and FIL Industries Ltd. (Jammu Unit-3) shows that both have common Central Excise/Service Tax Registration Number as AAACF3272AXM001.JAMMU and common Sales Tax Registration Number as 01181070576/JAMMU. Normally, if these were separate business and independent manufacturing units, these were required to be registered separately with the Central Excise/Sales Tax Authorities and obtained separate registration numbers. It therefore, appeared that Unit-2, Jammu and Unit-3, Jammu of FIL Industries Ltd. are not separate and independent industrial undertakings of the assessee i.e. FIL Industries Ltd. for the purposes of section 80IB of the Act. Apart from the above, another Unit which was no longer eligible for deduction u/s 80IB of the Act was also operating from the same premises. All the three Units were in the same line of business i.e. manufacture of Pesticides and other Agro Products. From the above records, it appeared that all the three Units were the same industrial undertaking for the purposes of Section 80-IB of the Act.
7.1 The A.O. asked for certain documents and information as under:
“1. Excise Record/Sales Tax records of the three units operating out of and carrying out their manufacturing activities from Lane-4, Phase-2, SIDCO Industrial Complex, Bari Brahamana, Jammu.
2. Whether these have been registered separately with the Central Excise Authorities/Sales Tax Authorities as independent and separate manufacturing units for Excise purposes or these are being considered as part of the same business and not independent manufacturing Units/industrial undertakings.
3. Whether separate electricity connections have been obtained for three Units mentioned above as independent and separate units/industrial undertakings. If yes, necessary documents evidencing the same should be furnished.
4. Whether permission has been obtained from pollution department to start the new units i.e. Unit-2 & Unit-3 at the above address independent and separate from the existing unit which s in its eleventh year of operation as submitted by you and as independent and separate industrial undertakings from each other. If necessary documents evidencing the same should be furnished.
5. Whether Unit-2 and Unit-3 of FIL Industries Ltd. operating out of the above mentioned address have been registered as new units with the DCI, Jammu independent of the Unit which is in the eleventh year of operation. If yes, documents relating to the same should be furnished which should show that Unit Number-2 and Unit Number 3, Jammu of FIL Industries Ltd. are independent, new and completely separate industrial undertakings.
6. Purchase bills and sales bills relating to the above three units should also be furnished.
7. Documents filed with SIDCO, Jammu in support of your claim that Unit-2 and Unit-3, Jammu do not represent expansion of the already existing industrial undertaking.
8. You should also furnish the bills relating to additions to Plant and Machinery in Unit-3 Jammu during the Financial Year 2003-04 relevant to the assessment year 2004-05 alongwith the audited accounts of the Unit including the schedule of fixed assets and the ledger where the individual items of Plant and Machinery have been recorded.”
7.2 The assessee furnished its explanation vide letter dated 20.12.2007, which for the sake of clarity is reproduced as under:
“Your kind attention is drawn towards section 80IB of the Income Tax Act, wherein the conditions for the industrial undertaking eligible for deductions and their compliance which are as follows:-Conditions:
(a) Not formed by splitting up of business:- the industrial undertaking should not be formed by splitting up of the existing business. The assessee had not formed the Units by splitting up. All the units of the assessee are in dependent and formed by new plant & machinery.
(b) It is not formed by the transfer to new business of machinery previously used for any business. All the manufacturing undertakings are separate and installed by new purchased machineries.
(c) It manufactures or produces articles or things (except those specified in Eleventh Schedule) or operates Cold Storage Unit within the specified time limit. The assessee is in the business of manufacturing of pesticides and other agro products and is not manufacturing of pesticides and other agro products and is not manufacturing any product specified in Eleventh Schedule. The manufacturing Units were established before the time limit (31/03/2007 for the State of Jammu & Kashmir).
(d) Employ 10/20 workers: in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs 10 or more workers in a manufacturing process carried on with the aid or power, or employs 20 or more workers in a manufacturing process without the aid of power.
The assessee had employed more than 10 people in each units (including contract labour) during the year 2004-05. Hence, it has complied with the conditions as to employing 10/20 workers.
Further all the units are formed by the new plant and machinery and are operating independently hence eligible for deduction u/s 80IB.
Since all the conditions as required for claiming deduction u/s 80IB(4) as eligible for an industrial undertaking in an industrially backward state specified in the Eighth Schedule has been complied with, so deduction claimed u/s 80IB should be allowed to the assessee.
Further submitted that Unit II was established in the financial year 1999-2000 and claiming deduction since then which has been allowed in the earlier years in assessments u/s 143(1) and 143(3) also. Similarly Unit III was established in financial year 2003-04 and the deduction for the same has been allowed as per assessment u/s 143(1) in the first year of operation.”
7.3 It was further submitted that all the three units were operating from the same premises, i.e. Lane No.4, SIDCO Industrial Complex, Bari Brahamana, Jammu under one company i.e. FIL Industries Ltd; and no separate registration was required for registering the different units if running from the same premises. One power connection have been taken in the name of the company. Due to sever shortage of electricity in the State, Units are basically run on Gen. Sets. Regarding permission from the Pollution Department to start the New nits i.e. Unit -2 & Unit -3, it has been submitted by the assessee that no separate permission has been obtained from the Pollution Department for different Units as they are in the same premises. It has been further submitted by the assessee in its reply dated 20.12.2007 that registration of all the units have been applied to the DIC, Jammu. Registration certificates of Unit-1 and Unit-2 were received and registration certificate of Unit-3 was under process. Copy of the registration certificate of Unit-1 and Unit-2 and application for registration of Unit-3 was also submitted alongwith the reply. In the reply it has been submitted that no documents were filed with SIDCO, Jammu since no separate capital investment subsidy/land allotment had been applied for Unit-2 and Unit-3.
7.4 It was observed by the AO that Unit 3, Jammu is running from the same premises as that of the earlier two Units, especially, the original unit which is identified by the assessee as Unit-1. As regards the application of Permanent Registration as Small Scale Enterprise for unit-3, the same has not been granted till date, even three and a half years after the formal application. As regards the Pollution clearance consolidated consent to operate all the three units is there. No separate permission has been obtained from J & K, State Pollution Control Board to run Unit-3. There is no evidence on record to furnish that Unit-3 is a new and separate industrial undertaking, separate and distinct from other two Units.
7.5 As regards the purchase and sale invoices of the three units which are located in the same premises were of the name of FIL Industries Ltd; and not separately in the name of Unit-2 & Unit-3 and the original unit as Unit-1. Although Unit-2 was registered with DIC, Jammu as a Small Scale Industrial undertaking, Unit-3 was not even registered as small scale industrial undertaking. Mere application to the DIC, Jammu with reference to Unit-3 does not make it a separate industrial undertaking.
7.6 As regards the electric connections of all the three Units, the same were operating under the original electricity connection, which was taken in the name of the FIL Industries Ltd.
7.7 Excise records of all the units which are being claimed to be separate units are common i.e. no separate records like R.G.-23A (part-2) relating to purchases and PLA are maintained for different units. Rather, these are maintained together in the same records. The AO accordingly observed that Unit-3 is not separate and new industrial undertaking, separate from the original undertaking, which is no longer eligible for deduction u/s 80IB of the Act It is only an extension of the earlier original undertaking. The assessee is, therefore, not eligible for deduction of Unit-3 u/s 80IB of the Act. The assessee was given show cause why the deduction u/s 80IB for Unit-3 should not be disallowed. In the meantime, the AO called for information under section 133(6) of the Act from Asstt. Commissioner of Central Excise, Division, Jammu vide letter dated 24.12.2007 The Excise Authorities submitted the reply which for the sake of clarity is reproduced as under:
“M/s. FIL Industries, Lane No.4, Phase-II, SIDCO Industrial Complex is registered with the Central Excise Department vide Registration No. AAACF3272AXM001 dated 20/03/2007. There is only one unit registered with the department having its manufacturing activity at the above said address. There is no other unit having same registration number and address. As mentioned in your letter regarding three separate industrial units, it is intimate that there is no other unit of M/s. FIL Industries located at Lane No.4, Phase-II, SIDCO, Industrial Complex, Bari Brahamana, Jammu and neither it is registered with the department as per the records of this office.
(2A) Date of original registration is 07/10/1994 with registration Sr. No.49/PBC-II/Jammu/94 in the name of Fungicides India Ltd; Bari Brahamana, Jammu. The name was changed to FIL Industries Ltd. w.e.f. 08.11.2000. Date of commencement of production is 31/03/1995.
(B) The capacity expansion claim of the party has been decided by the Asstt. Commissioner Central Excise Division, Jammu vide order in original No.1-2/AC/Expansion/Ref/04 dated 09/03/2004 where under the unit has been adjudged as eligible for exemption benefit under Notification No.56/2002 dated 14.11.2002 The said capacity expansion pertains to the unit already registered with the department and the unit does not change its identity after expansion i.e. the same unit has got the expansion in order to avail the benefits of Notification No.56/2002 dated 14/11/2002 i.e. the same unit has got the expansion in order to avail the benefits of Notification No.56/2002 dated 14/11/2002.
(C) Yes, the assessment for Central Excise purpose is done as one unit both for the unit prior to expansion and after expansion.
(D) Yes, the units, the original unit as well as the expanded unit are treated as same Industrial Unit/Undertaking for Central Excise purposes.
(E) Yes, M/s. FIL Industries, Lane No.4, Phase-II, SIDCO Industrial Complex, Bari Brahamana, Jammu registered with the department vide Registration No. AAACF3272AXM001 dated 20/03/2007 is claiming Excise Duty Refund as a single Industrial Unit/Undertaking.
(F) There is no unit in the name of M/s. FIL Industries Ltd. Unit-II, Jammu falling under the jurisdiction of this Range.”
7.8 The Ld. counsel for the assessee, Mr. Neeraj Karwal & President of Company was informed of the said reply that no industrial undertaking in the name of FIL Inudistries Ltd; Unit-2, Jammu existed. Unit-2 has not separate Excise Records, Sales Tax and clearance from the Pollution Department etc. It was observed by the AO that the Ld. counsel for the assessee stated that Unit-2 is not registered with Sales Tax Authorities as separate unit and consolidated statement is filed for all the three Units with Sales Tax Authorities and purchase & sale invoices of Unit-2 & Unit-3 are common i.e. they do not issue separate sales invoices of their alleged units. PLA Account and RG 32A register and other excise records are the same and common for all three alleged Units. It was pointed out to the assessee why the alleged Unit-2 which had claimed benefits of deduction u/s 80IB amounting to Rs.49,48,809/- should not be disallowed in the impugned year. It is only the assessee who has created the separate identity as Unit-2 and Unit-3. It was pointed out by Sh. Neeraj Karwall and Sh. Naveen Prothi appearing on behalf of the assessee that Unit-2 had been granted Certificate of Permanent Registration under Permanent Registration Number 07/04/08901 ( date of issue 18/12/2002) by DIC, Jammu. Hence, it was a separate industrial undertaking. It has also been stated that no separate registration is required for different industrial undertakings working from the same premises. It was submitted that claim for deduction u/s 80IB for Unit-2 had been allowed for the earlier assessment years.
7.9 The Ld. counsel for the assessee Mr. Neeraj Karwall vide letter dated 26.12.2007 submitted as under:
“With reference to your queries, the reply is again submitted as follows as per the information & explanations provided by the management.
Your kind attention is drawn towards section 80IB(2) of the Income Tax Act, wherein the conditions for the industrial undertaking eligible for deductions and their compliance has been laid out, which the company had complied with.
Further, all the units are formed by the new plant & machinery and are operating independently hence eligible for deduction under section 80IB.
Since all the conditions are required for claiming deduction u/s 80IB(4) as eligible for an industrial undertaking in an industrially backward state specified in the Eighth Schedule has been complied with, so deduction claimed u/s 80IB should be allowed to the assessee.
Further submitted that Unit II was established in the financial year 1999-2000 and claiming deduction since then which has been allowed in the earlier years in assessments u/s 143(1) and 143(3) also. Similarly, Unit III was established in financial year 2003-04 and the deduction for the same has been allowed as per assessment u/s 143(1) in the first year of operation.
Your kind attention is also drawn towards the following judgment:
Commissioner of Income tax v. Indian Aluminimum Co. Ltd. 88 ITR 257 (Cal), wherein the honourable High Court of Calcutta has held that
“Reconstruction of existing business-New productions units added by assessee to existing production units resulting in almost double the production-substantial investment made in the new units cannot be called reconstruction. Assessee’s original business remaining intact, establishment of separate independent undertakings by large investments whether of same or different nature in respect of same or different commodity, cannot be called reconstruction of the existing business for the purposes of deduction.”
Further as required by your goodself, the bills of Plant & Machinery, building etc. for setting up of Unit-III and their respective ledger accounts are being produced for your perusal.
Sir, in light of the above citation and the books of accounts along with the bills have been produced for verification and it is submitted and reiterated that all the units are independent and set up by the new plant & machinery, had complied to the conditions laid out u/s 80IB, are therefore, eligible for the deduction u/s 80IB which have been rightly claimed by the assessee for the said units.”
7.10 The A.O. called for the information from Commercial Tax Officer, Jammu under section 133(6) of the Act, who furnished the information vide letter No.5153/CTO/G dated 27.12.2007 wherein it was stated as under:
“(i) there is only one Unit registered in the name of M/s. FIL Industries Ltd. and assessment work is done as one Unit only. If there had been three different units then separate assessment for each unit needs to be done.
(ii) Each Unit should be separately registered with Commercial Tax Department.
(iii) Yes, separate TIN should be different for each Unit.”
7.11 The information on the same lines were called for from the Plant Protection Officer, Agriculture Department, J & K vide letter dated 24.12.2007, where it has been confirmed by the Directorate that they had granted only one manufacturing license of Pesticides formulations vide manufacturing license No.J/M-Pvt/03 dated 1/9/94 situated at Lane No.4, Phase-II, SIDCO Industrial Complex, Bari Brahamana, Jammu. No manufacturing of license of Pesticides formulation has been granted to FIL Industries Ltd. Unit-2 and Unit-3. For granting of manufacturing license of Pesticides formulation of each Unit the concerned has to apply afresh separately. Similarly, the Inspector of the Factories and Boilers, Circle-2, vide his letter dated 26.12.2007 has confirmed that only one industrial unit in the name of FIL Industries Ltd. is working from Lane No.4, Phase-II, Bari Brahamana. The DIC, Jammu, vide letter dated 27.12.2007 has confirmed that there is no information available with them regarding Unit-3, Jammu. However, FIL Industries Ltd; Unit-2 has been registered as a separate Unit vide No.07/04/08901 dated 18/12/2002. The AO vide pages 27 to 30 of his order concluded the matter and the findings of the AO are reproduced for the sake of clarity as under:
“However, capacity expansion of an industrial undertaking already in existence as has been certified to have been done in the case of the assessee by the Excise Authorities does not mean setting up of a completely new industrial undertaking. Capacity expansion is only for the original unit already in existence and which is no longer eligible for the benefits of section 80IB . No new industrial undertaking comes into existence as a result of capacity expansion of an already existing unit/industrial undertaking. It is absolutely clear that the capacity expansion was done in respect of the original industrial undertaking of FIL Industries Ltd. which was registered with the Excise Authorities on 07/10/1994 in the name of Fungicide India Ltd. which was later changed to FIL Industries Ltd. w.e.f. 08/11/2000 and whose date of commencement of production is certified as 31/03/1995 by the Excise Authorities. The capacity expansion was done by the said Unit so as to become eligible for exemption benefits under Notification No.56/2002 dated 14.11.2002. The assessee cannot claim capacity expansion of the original unit (which is no longer eligible for deduction u/s 80IB) before the Excise Authorities for claiming exemption benefits under Notification No.56/2002 dated 14.11.2002 for the purposes of Central Excise and, at the same time, treat this capacity expansion of the already existing unit as a separate industrial undertaking for claiming benefits u/s 80IB. It is clear, without any doubt that the profits and gains claimed to have been derived by the alleged Unit-3 of FIL Industries Ltd. on which the assessee has claimed deduction u/s 80IB of the IT. Act, 1961 of an amount of Rs. 6,52,08,094/-, is nothing but the profits and gains derived by Unit-1 of FIL Industries Ltd. which was registered with the Central Excise Authorities in 1994 ( and which is no longer eligible for deduction u/s 80IB of the Act. Hence, the deduction u/s 80IB of the amount of Rs. 6,52,08,094/- claimed by the assessee from the alleged Unit-3, Jammu cannot be allowed as a deduction.
The assessee in its submissions through its Counsel vide letters dated 20/12/2007 and 26/12/2007 has submitted that the industrial undertakings, i.e. Unit-2 and Unit-3 have fulfilled all the conditions laid out in the provisions to be eligible for deduction u/s 80IB of the Act. However, the discussions and reasons in the preceding paras clearly prove beyond any doubt that these alleged industrial undertakings, Unit-2, Jammu and Unit-3, Jammu do not exist at all as separate industrial undertakings.
Hence, the question of complying with all the requirements laid down in the provisions of Section 80IB does not arise. They do not existing as industrial undertakings in the records of any Government or Statutory Authorities. Had they been separate industrial undertakings they would have applied for licenses and permissions from the different Government and statutory authorities for the purposes of being recognized as new and separate industrial undertakings, separate and distinct from the original industrial undertaking of FIL Industries Ltd. (which is no longer eligible for deduction u/s 80IB).
The assessee has admitted that Excise and Sales records of all the three Units are common, i.e. separate records for the different alleged Units are not maintained for Excise or Sales Tax purposes. The alleged Units, i.e. Unit-2 and Unit-3 are operating from the same premises as the original Unit-1 ( which is no longer eligible for deduction u/s 80IB). The alleged Unit-2 and Unit-3 , Jammu have not filed any documents with SIDCO, Jammu for starting new industrial undertakings which is normally required. The power connection is in the name of the original Unit and the alleged Units 2 & 3 do not have any separate power connection or permission from the Electricity Department. Rather, the power connection is in the name of the industrial undertaking which is no longer eligible for deduction u/s 80IB of the Act. No permission has been taken from the Pollution Department in the name of the alleged Units -2 & 3 which is required to be done in case new industrial undertakings are being set up. The purchase bills are in the name of FIL Industries Ltd. for the original Unit as well as the alleged Units-2 and 3. If these were separate industrial undertakings the purchase bills should have been in the specific names of the particular undertaking. Even the sales invoices have been admitted to be common for the original Unit as well as for the alleged Units-2 and 3.Had these been separate and distinct industrial undertakings, these would have raised the sales invoices in their individual names.
As per the Excise Laws, separate industrial undertakings require their own separate registration numbers on the sales invoices. The Excise Authorities have categorically stated that FIL Industries Ltd; registered with the Department in 1994 is claiming Excise duty refund as a single industrial unit/undertaking under registration number AAACF3272AXM001. Had these three industrial undertakings been distinct and separate industrial undertakings, these were required to maintained different records for the different industrial undertakings. Even the Sales Tax Authorities have categorically stated that the different industrial undertakings are required to be assessed separately with separate TIN Number. The Plant Protection Officer has also categorically stated tat for granting manufacturing license of Pesticides Formulation of each Unit the concerned has to apply afresh separately. Inspector of Factory and Boiler has also confirmed that only one industrial Unit in the name of FIL Industrial Ltd. is working at Lane No.4, Phase-II, SIDCO Industrial Complex, Bari Brahamana, Jammu.
The assessee has not produced even a single evidence to show that Unit-2 and Unit-3 are separate and independent industrial undertaking and are carrying out manufacturing activities.
All the above evidences and facts and reasons which were also confronted to the assessee during the course of assessment proceedings clearly prove beyond doubt that Unit-2, Jammu on account of which the assessee has claimed deduction of Rs. 49,48,809/- u/s 80IB of the Act and Unit-3, Jammu of FIL Industries Ltd; on account of which the assessee has claimed deduction of Rs. 6,52,08,094/- do not exist as industrial undertakings. It also proves that the profits and gains shown to have been derived from the above mentioned two Units i.e. Unit-2 & Unit-3, Jammu of FIL Industries Ltd. are in reality the profits and gains of the original industrial undertaking which was registered with DIC, Jammu and the Central Excise Authorities in 1994 and, which is no longer eligible for deduction u/s 80IB of the Act. Since the alleged Units 2 and 3 of FIL Industries Ltd. are not industrial undertakings, the benefits of deduction claimed by them cannot be allowed. Since it has been clearly shown that the profits and gains of business claimed to have been derived by the above alleged Units actually relate to the original Unit which is no longer eligible for deduction /s 80IB, the claim of deduction of Rs.49,48,809/- claimed on account of alleged Unit-2, Jammu and the claim of deduction of Rs.6,52,08,094/- claimed on account of the alleged Unit-3, Jammu of FIL Industries Ltd. is disallowed and added to the total income of the assessee.
During the course of assessment proceedings and vide its reply dated 26.12.2007, it has been submitted by the Counsel that deduction claimed u/s 80IB by Unit-2 and Unit-3 have been allowed in the earlier assessment years. The assessee has also drawn attention towards the judgment of the Hon’ble High Court of Calcutta in the case of CIT v. Indian Aluminium Company Ltd. 88 ITR 257.
The submissions of the assessee have been considered. Only because a deduction has been allowed in any earlier assessment year does not mean that the same will be continued to be allowed in the subsequent years when the claim of deduction is found to be wrong and against the provisions of the Act. Further, the judgment relied upon by the assessee as above is not relevant to the issues which are involved in this year. The issue is not relating to reconstruction of business. The issue is whether any new and separate industrial undertaking is actually in existence. The case law relied upon by the assessee does not in any way apply in this case.
In view of the above, total amount of disallowance u/s 80IB of the Income Tax Act, 1961 on this account works out to (Rs. 48,49,809/- + Rs. 6,52,08,094/- i.e. Rs.7,01,56,903/- which will be added to the total income of the assessee.
The assessee has made wrong claim of deduction u/s 80IB of the Act in respect of alleged Units, Unit-2 & Unit-3, Jammu as above totally amounting to Rs. 7,01,56,903/-. The assessee has, therefore, furnished inaccurate particulars of income as above. Penalty proceedings u/s 271(1)(c) of the I.T. Act, 1961 is, therefore, initiated for furnishing inaccurate particulars of income.”
8. Before the Ld. CIT(A), it was contended that all the conditions laid down under section 80IB of the Act have been fully satisfied and there is no splitting up or reconstruction of business and units have not been formed by transfer of any Plant and Machinery to new business. It was also argued before the Ld. CIT(A) that it is the assessee who has to obtain registration from various authorities like Sales Tax, Excise Department, Pollution Department and Electricity Department etc. and not the each undertaking carrying on business in the same premises. The assessee company is a company incorporated under the Companies Act, 1956 is having a single constitution and it has to obtain registration in the name of the assessee-company. There is no requirement under any of the Act to obtain a separate registration for each unit or undertaking. The submission of the assessee was forwarded to the AO. The AO in the comments submitted that the assessee has not maintained any separate registration for Unit-2 & Unit-3 and therefore, they go to prove that such industrial undertakings were not set up separately and, therefore, were not liable for deduction u/s 80IB of the Act. The said industrial undertakings were created to claim deduction u/s 80IB of the Act. The only Unit-1 of the assessee which at present is not eligible for deduction has been registered. It was also stated by the AO that a survey under section 133A of the Act was carried out on 05/03/2008 at business premises of the assessee. During the course of survey, evidences were discovered which prove that the assessee did not set up an industrial undertaking separately. Statements on oath of different employees were recorded that only one industrial undertaking was set up in the year 1994. Survey under section 133A of the Act was also carried out in the premises of the auditors’ of the company M/s. K.S. Aggarwal & Co. CAs and statements of Sh. K.S. Aggarwal and Sh. Aditya Aggarwala were recorded, who denied having any knowledge of the assessee company and they have never audited books of account of the assessee. It was submitted by the said Auditors’ that Form No.10CCB filed by the assessee is false and forged.
8.1 The assessee in response to the comments of the AO submitted that survey action cannot be the basis of denying deduction u/s 80IB of the Act, since the statements so recorded during the course of survey have no evidentiary value. The statements so recorded are based which are in the knowledge of the employees of the undertakings of the assessee company. The report from forensic expert was also filed to certify the genuineness of the signatures of the Auditors’. It was also submitted that the assessee had installed separate Plant and Machinery and books of account and other records like production record have been maintained to arrive at production cost of sales and determined the unit-wise efficiency of each of the unit. It was submitted that the assessee was not allowed cross-examination of the Chartered Accountant, Mr. K.S. Aggarwal. Therefore his statement cannot be relied upon. The Ld. CIT(A) accordingly directed the A.O to provide cross examination of the assessee but no cross examination was provided. The AO also filed Forensic Expert report of Mr. D.D. Goel, who had confirmed the signature of the Auditors’ Mr. K.S. Agarwal, CA that on the Audit Report such signatures did not tally with the questioned documents. It was held by the Ld. CIT(A) at page 54, 65 and 66 of his order, which for the sake of clarity is reproduced as under:
“On due consideration of the facts and circumstances, the appellant company’s submissions, the AO’s order and remand reports, and the material available on record, I find that the submissions made by the appellant are not substantiated by any worthwhile supporting documentary evidences. Hence, the same are not acceptable being devoid of merits. The case laws/decisions relied upon by the appellant are also distinguishable on facts as the same do not squarely cover the case of the appellant and also not directly on the issue involved. Whereas, the AO has passed a detailed and well reasoned order, duly supported by the supporting evidences/documents/informations, gathered by him by making investigations/enquiries during the course of assessment proceedings from various Govt.
Departments/Agencies/persons. And it is held that the disallowance of the claim of deduction can not be attributed only to the registration and location of the Units, by the AO, as contended by the appellant.
Therefore, I am inclined to agree with the observations of the AO as contained in his assessment order and remand reports and hold that the AO is justified in making the disallowance of the claim of deduction u/s 80IB amounting to (Rs.7,01,56,903/- (Rs.49,48,809/-Unit-2 & Rs.6,52,08,094/- Unit-3) The AO’s action is upheld and the appeal of the appellant is dismissed on this ground.”
“In this respect I have carefully considered the facts of the case and the material available on record. In view of the categorical statements of Sh. K.S. Aggarwal, CA and Sh. Aditya Aggarwal, CA (Partners of K.S. Aggawal & Co., CAs) New Delhi, wherein they have categorically denied having audited the books of account of the appellant company, the statement of Sh. B.Lal, Forensic Document Expert, where in he has stated that his opinion is only with reference to the signature produced before him for examination by M/s. FIL Industries Ltd and that he has no personal knowledge of any K.S. Agarwal of M/s. K.S. Agarwal & Co.; 165 , Sukhdev Vihar, New Delhi and also in view of the report of Sh. D.D. Goel, Forensic Document Examiner, 17, Harsh Vihar, Pritampura, Delhi – 110034, wherein he has given his opinion that the stamp impressions and the signatures on the said Audit Report are different and not the same, I hold that the genuineness and authenticity of the Audit Report has not been established.
Therefore, considering the totality of the facts and circumstances I am of the view that the forensic report of Sh. B. Lal, submitted by the appellant does not appear to be a credible document as it lacks the basic requirements of genuineness of the admitted documents, Audit Report u/s 44AB in Form No.3CD and Form No.3CA, audited P & L A/c, Audited Balance Sheet and all the documents relating to Balance sheet and P & L account of the A.Y. enclosed with the return of income , Form No.10CCB in respect of FIL Industries Ltd. ( Jammu, Unit II) Form No.10CCB in respect of FII Industries Ltd. ( Jammu, Unit-III) and form No.10CCB in respect of Kohinoor International Agro Products Controlled Atmospheric Stores, Srinagar, the forms which certify the deduction available to an Industrial undertaking u/s 80IB of the income tax Act, 1961, since the Audit Firm of M/s. K.S. Aggarwl & Co. CAs ( Partners Sh. K.S. Agarwal CA and Sh. Aditya Agarwal, CA) has categorically denied and stated that the Form No. 3CA & 3CD as well as form Nos. 10CCB for the A.Y. 2005-06 have not been issued by their firm M/s. K.S. Agarwal & Co. They have stated to have never audited the books of account of M/s. FIL Industries Ltd; the appellant company. Moreover, the claim made by the appellant company, are not tenable and have rightly been rejected by the AO.
The AO’s action is upheld and the appeal of the appellant company is dismissed on this ground.”
8.2 It was argued by the Ld. counsel for the assessee Mr. C.S. Aggarwal, Advocate that the assessee is having three separate industrial undertakings at the premises, Lane No.4, Phase -II, SIDCO Industrial Complex, Bari Brahamana, Jammu, which are manufacturing Agro Products and Pesticides. It was argued that Unit-III was set up in the assessment year 2004-05 and deduction u/s 80IB was claimed and was allowed. The impugned year is the 2nd year. As regards Unit-2, the same was set up in the assessment year 2000-01 and the assessee had claimed deduction u/s 80IB of the Act, during the year as the sixth year of operation. The said deduction was allowed by the Department upto assessment year 2004-05, continuously for five years not under dispute. The assessee has been assessed u/s 143(3) of the Act. As regards Unit-1, it was set up in the year 1994 and deduction was claimed from the assessment year 1997-98 and was allowed by the department up to the assessment year 2004-05. The impugned year is 11th year of operation and it is not allowable in the 11th year of operation, as per provisions contained in section 80IB of the Act. On the basis of enquiries with various authorities, the AO had denied deduction u/s 80IB of the Act for the impugned year with regarding to Unit-2 &Unit-3 being the 6th year of operation and 2nd year of operation inspite of the fact having allowed deduction u/s 80IB for five years continuously for Unit-2 and one year for Unit-3 as mentioned hereinabove. The assessee had prepared a separate Profit & Loss account of each Unit and have declared unit-wise separate profits which is a matter of record and have not been disputed.
8.3 It was argued by the Ld. counsel for the assessee, Mr. C.S. Aggarwal relying upon the decision in the case of Coca Cola Export Corporation v ITO reported in 231 ITR 200 (SC) that there is no requirement to obtain separate registration for each of the unit even assuming that there is violation of the said requirement. Accordingly, even such violation cannot be the basis to deny the claim of deduction u/s 80IB of the Act. He argued that the assessee had fulfilled all the conditions which were necessary to claim deduction u/s 80IB of the Act on the basis of which the assessee had been allowed deduction for Unit-2 for five years and for one year for Unit-3 as mentioned hereinabove. He took the Bench to the provisions of Section 80IB of the Act. Mr. C.S. Aggarwal, Ld. counsel for the assessee, invited our attention to the various pages of the paper book where the assessee had made fresh investments for setting up of the unit. The amount invested for each of the separate unit is a part of financial accounts which are duly audited. The assessee is maintaining separate production records for each of the three units i.e. Unit-1, Unit-2 & Unit-3, which are available on record in the form of written synopsis placed before us. The Ld. counsel for the assessee, Sh. C.S. Aggarwal produced the production record for each of the unit which have been maintained separately before the Bench for consideration of the Bench. He further argued that as per Rule of consistency, once having deduction been allowed in the preceding years and in the absence of any change in the facts or law, no deduction could be disallowed in the impugned year. He relied upon the decision of the Hon’ble Gujarat High Court in the case CIT v. Saurashtra Cement and Chemicals Industries Limited reported in 123 ITR 669 and Hon’ble Bombay High Court in the case of CIT v. Paul Brothers reported in 216 ITR 548. Once having fulfilled all the necessary conditions as laid down in Income tax Act, which were read by Mr. C.S. Aggarwal, the Ld. counsel for the assessee, the deduction u/s 80IB is allowable and in this regard, he relied upon the decisions of various courts of law, as under:
(i) Textile Machinery Corporation Ltd. v. CIT [1977]107 ITR 195 (SC).
(ii) CIT v. Mahan Foods Ltd. 216 CTR 148 (Del)
(iii) CIT v. Associated Cement Companies Ltd. 118 ITR 406 (Bom.)
8.4 The Ld. counsel for the assessee further argued that even there is no requirement to maintain separate books of account and with reference to three separate units in this regard, he relied upon the decisions of various courts of law as under:
(i) CIT v. Sree Krishna Pulversing Mills 241 ITR 262 (AP)
(ii) CIT v. High Lamps Limited 190 ITR 553 (All.)
8.5 Mr. C.S. Aggarwal, Adv. the ld. counsel for the assessee further argued that as per section 250(4), the ld. CIT(A) may, before disposing of any appeal make such further inquiry as he thinks fit, or may direct the AO to make further inquiry and report the result of the same to the CIT(A). Whereas in the present case, there is no such inquiry made by the Ld. CIT(A) and no direction to the AO to make further inquiry has been directed by the CIT(A). Under Rule 46A, the appellant only is allowed to produce any evidence whether oral or documentary other than the evidence produced by him during the course of proceedings before the A.O. It is not the prerogative of the AO to produce any additional evidence before the Ld. CIT(A) which in the present case has been done by the A.O. by making survey on the assessee. Therefore, the Ld. counsel Mr. C.S. Aggarwal, argued that in the absence of any inquiry made by the CITA), the evidences relied upon by the AO during the appellate proceedings are without jurisdiction. The Ld. counsel for the assessee relied upon the decision of the Hon’ble Rajasthan High Court in the case of CIT v. Rao Raja Hanumant Singh reported in 252 ITR 528 and decision of ITAT, Delhi Bench in the case of Mitsui and Co. Ltd. New Delhi v. ACIT Circle 2, Delhi, which are placed on record. Therefore, during the course of hearing such survey statement so recorded of the employees have no evidentiary value as having recorded during the course of survey. He relied upon the decisions of various courts of law in support of his claim, as under:
(i) Paul Methews & Sons v. CIT 263 ITR 101 (Kerala)
(ii) CIT v. S. Khader Khan Sons 300 ITR 157 (Mad)
(iii) CIT v. Dhingra Metal Works [2010] 328 ITR 384 (Delhi)
8.6 He further argued that Forensic Report of Sh. D.D. Goel is also based on the signature taken from Sh. K.S. Aggarwal, CA during the course of survey and the statement recorded during the said survey. Such statement as argued earlier have no evidentiary value and such Forensic Report of Sh. D.D. Goel with regard to the signature of Sh. K.S. Aggarwal, cannot be a evidence on record. The assessee was not given any cross examination of the statement so recorded of the CA and therefore, such statement can not be relied upon in view of the decision of the Hon’ble Supreme Court in the case of Kishanchand Chellaram v. CIT 125 ITR 713. The survey on the CA was not valid in view of the decision of U.K. Mahapatra and Co. v. ITO 308 ITR 133 ( Orissa).
8.7 Mr. C.S. Aggarwal, the Ld. counsel for the assessee read the statements and argued that none of the paras of the statements established that separate Units were not set up by the assessee. Mr. C.S. Aggarwal argued that the assessee had filed and placed on record the report of the Forensic Expert Mr. B.Lal to prove that the signatures of Mr. K.S. Aggarwal CA on the audit report were the signatures of Mr. K.S. Aggarwal CA only and therefore, the claim of the Revenue that disallowance of deduction u/s 80IB of the Act cannot be given any credence. It was argued that the assessee had paid the Auditors’ fees which has not been disallowed and no penalty u/s 271B of the Act, has been imposed on the assessee-company, which goes to prove that the audit report u/s 44AB had been accepted by the Department. He invited our attention to the statement of the President of the Company and the Internal Auditors’ of the Company in this regard. Mr. C.S. Aggarwal argued, therefore, that claim u/s 80IB of the Act for Unit-2 & Unit-3 as an independent Unit is allowable.
9. Mr. Girish Dave, the Ld. counsel for the Revenue at the outset objected to the contention of the assessee that no proper and valid opportunity was granted by the A.O. is factually incorrect. He further argued that the valid and proper opportunity was granted by the AO to the assessee. Mr. Girish Dave, read out all the order-sheet entries of the AO. He further pointed out at various pages of the assessment order that the assessee had not taken the separate registration for Unit-2 & Unit-3 and therefore, in order to claim deduction under section 80IB of the Act, the setting up of the Units was not independent and separate undertaking. He further argued with regard to the inquiry from various statutory authorities like Central Excise Department, Commercial Tax Officer, Inspector Factory and Boiler, DIC, Plant Protection Department etc. that the assessee has not set up separate and independent undertaking. Mr. Dave, the Ld. counsel for the Revenue relied upon the order of Central Excise Authority in which it has been held that Unit-3 was not a separate and independent undertaking. Mr. Dave, invited our attention to the Insecticides Act, 1968 and copy of the said Act was placed on record with regad to the Rule 9, Form-III, Form-IV, Rule 9(3), Form-V, FVI-D, rule 10(4A)) and various sections of the Insecticides Act, 1968 alongwith various pages of the License in assessee’s paper book No.3.
9.1 Mr. Girish Dave, the ld. counsel for the Revenue argued that out of the said provisions contained in the Insecticides Act, 1968 and on perusal of the Licence, it does not come out that one particular unit has been added and therefore, the assessee is not an eligible industrial undertaking for deduction u/s 80IB of the Act. As regards Unit-2 & Unit-3 are concerned, Mr. Dave also read out the statements of the employees recorded during the course of survey that no independent undertaking were set up as Unit-2 & unit-3. Mr. Dave, carried us to the audit report furnished and stated that the same was not genuine audit report. As regards additional evidences submitted by the AO before the Ld. CIT(A), it was argued that powers of the CIT(A) are co-terminus with that of the AO and the CIT(A) has wide powers and the CIT(A) can do what the AO can do and the CIT(A) can do what has not been done by the A.O. He argued that the ld. CIT(A) is the extension of the Assessing Authority. He relied upon the decisions of various courts of law as under:
(i) C.I.T v. Kanpur Coal Syndicate [1964] 53 ITR 225 (SC)
(ii) CIT v. Trehan Enterprises [2001] 248 ITR 333 ( J&K)
(iii) CIT v. Nirbherm Daluram [1997]224 ITR 610 (SC)
(iv) CIT v. Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443 (SC)
9.2 He also relied upon the decision of ITAT Delhi Bench, in the case of UOP LLC v. Additional Director of Income Tax, reported in 108 ITD 186 and submitted that under Rule 29 of the ITAT Rules, 1963, additional evidence was admitted by the Tribunal. He further argued that Rule of consistency cannot be relied upon. He relied upon the decision of ITAT, Delhi Bench, in the case of JMD Realtors (P) ltd. v. Dy. Commr. of Income tax in ITA No.5346(Delhi) of 2011 dated 29th Feb, 2012. He also read the provisions of section 80IB(5) and section 80IB(13) of the Act and submitted that the assessee is required to maintain separate books of account. He further relied upon the decision of the Hon’ble Delhi High Court in the case of CIT-III v. Sona Koyo Steering Systems Limited reported in ITA 1279/2008 dated 10.02.2010. The assessee has prepared books of account on guess and separate books of account unit-wise has not been maintained and therefore, no reliance can be placed on such accounts on the basis of which assessee has declared profits unit-wise.
9.3 As regards the Forensic Report of Sh. D.D. Goel, which clearly proves the signatures of Sh. K.S. Aggarwal was not genuine and as regards the production of cross-examination of Sh. K.S. Aggarwal, it was the burden on the assessee to produce him for cross-examination. As regards the report of Sh. B.Lal submitted by the assessee, it was argued and stated by Mr. Girish Dave, the ld. counsel for the Revenue that these documents considered as admitted were denied by Sh. Aditya Aggarwal.
10. Sh. C.S. Aggarwal, the Ld. counsel for the assessee, in the rejoinder argued that the A.O. has not disputed the correctness or completeness of books of account including production of record and has not rejected the books of account by invoking the provisions of section 145(3) of the Act. All the more the ld. CIT(A) has given finding at page 27 that the assessee had produced complete books of account and has not disturbed the findings of the AO in this regard. It was also submitted by Sh. C.S. Aggarwal, the Ld. counsel for the assessee with regard to affording of adequate opportunity to the assessee during assessment proceedings, the Ld. counsel has filed a ‘Note’ regarding claim of deduction under section 80IB in response to questionnaire dated 09.06.2007. A complete reply dated 05.11.2007 has been submitted by the assessee. Till this date i.e. 05.11.2007, the AO was satisfied and there was only one query with regard to section 80IB(11A) of the Act on 12.12.2007. It was for the first time, a query was raised that Unit-2 & Unit-3 are extension of Unit-1 for which no claim of deduction u/s 80IB is available. The AO initiated proceedings vindictively with regard to claim of deduction u/s 80IB only vide letter dated 12.12.2007 which were confronted to the assessee at the fag end of the assessment proceedings i.e. on the last date of hearing on 12.12.2007. The assessment was completed on 31.12.2007. The assessee was never supplied the copies of such letters or inquiries but the same were shown to the Ld. AR during the assessment proceedings. As alleged by the Ld. counsel for the Revenue that the assessee has attempted to delay the proceedings is incorrect whereas the assessee had submitted all the details as and when required. It was only on the basis of surmises and conjectures that the AO had reached at a conclusion that no such separate unit or independent unit exists ignoring the production record. The assessee had not made any attempt in this regard that no separate Unit-2 & Unit-3 exist. It had been argued before the Ld. CIT(A) as well as before this Bench from day one that no separate Registration is required by various statutory authorities. What are the basis with the AO to deny the claim of the assessee, even if the undertakings are not separately registered with the statutory authorities. The Ld. counsel for the Revenue has not brought on record an iota of the basis of the claim of the Revenue that the assessee cannot be allowed deduction u/s 80IB of the Act, if the units are not separately registered with various statutory authorities. Whether it is a pre-condition in the Income-tax Act to get the various undertakings to be registered as a separate unit has not been brought on record by the Ld. counsel for the Revenue. As required by Rule 9(2) which provides if the insecticides is manufactured/produced at more than one place then separate registration is required. The reply of the DIC, Jammu clearly supports the claim of deduction under section 80IB of the Act., has been ignored by the ld. counsel for the Revenue. The letter written by DIC, Jammu to the assessee that machinery has been installed on 28.03.2003 has also been ignored by the ld. counsel for the Revenue. The case relied upon by the ld. counsel for the Revenue is with regard to refund of Excise Duty has no applicability in the present facts and circumstances.
10.1 As regards the statements taken during the course of survey, which has not evidentiary value, the ld. counsel for the Revenue has not disputed the contentions and arguments raised by the ld. counsel for the assessee and once deduction is allowed in the initial assessment year, it will not be denied in the succeeding assessment years. An opportunity was not provided to the assessee for cross examination of the CA, Sh. K.S. Aggarwal and such statement cannot be relied upon. The case relied upon in the case of UOP LLC v. Addl. Director of Income Tax (supra) is misconceived, which was rendered in the context of Rule 29 of ITAT Rules, 1963. He further argued that decision of ITAT Delhi Bench in the case of Mitsui Co. Ltd. (supra) is rather applicable in the present facts and circumstances of the case.
11. We have heard the rival contentions and perused the facts of the case. The assessee is engaged in the business of manufacture and sale of Pesticides and Agro Products etc. at Lane-4, Phase-II, SIDCO Industrial Complex, Bari Brahamana, Jammu. As regards deduction under section 80-IB in respect of Unit-1 claimed by the assessee, the same was eligible for ten years ending in the assessment year 2004-05 and the same was not allowable during the impugned year as per provision of the Income Tax Act, being the eleventh year of operation. We find no dispute to the facts on record that the assessee had made fresh investments in the Plant and Machinery with regard to the industrial undertaking as Unit-2 which was accepted by the department as eligible undertaking and deduction u/s 80IB has been allowed for five years upto the assessment year 2004-05. The assessments under section 143(3) of the Act have been made for the assessment years 2000-01, 2001-02 and 2003-04. The assessment for the assessment year 2004-05 has been completed under section 143(1) of the Act. As regards deduction u/s 80IB with respect to Unit-3, it has been claimed for the first time during the assessment year 2004-05 by the assessee, which was allowed to the assessee and the assessment was completed u/s 143(1) of the Act. The assessee during the year had claimed deduction for two Units i.e. Unit -2 & Unit-3 u/s 80IB of the Act on the basis of separate financial accounts i.e. 30% in respect of Unit-2 being sixth year and 100% in respect of Unit-3 being second year. The audit report in Form 10CCB are in support of the claim of the assessee is on record. The AO made inquiries from various statutory authorities that Unit-2 & Unit-3 were not separate and independent industrial undertakings and it was the case of extension of business of Unit-1 for which deduction u/s 80IB of the Act is not available being eleventh year of operation u/s 80IB of the Act. The AO observed that the assessee is having three industrial undertakings at a common place having common statutory registration from Excise Department, Sales Tax Deptt., Pollution Deptt. etc. and are having common record. The assessee is having one power connection and all the purchase and sale invoices are in the name of the assessee and not in the name of separate Unit-2 & Unit-3. Having heard the parties and perusal of records, the dispute before us, when the assessee is having maintained common record of Excise Duty, Sales Tax, Service tax and having common registration and no separate permission from Pollution Department, having common electricity connection can be a basis to deny deduction u/s 80IB of the Act. As per reading of the provisions of section 80IB(1), 80IB(2) and 80IB(4) jointly, it shows that where gross total income of the assessee includes any profits and gains derived from any industrial undertaking in Jammu & Kashmir, the assessee shall be eligible to derive profits from such industrial undertaking subject to that (i) it is not formed by splitting up or the reconstruction of a business already in existence, (ii) it is not formed by the transfer of a news business of machinery or plant previously used for any purpose, (iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India, and (iv) in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power.
11.1 After reading statutory provisions as contained in section 80IB(1), 80IB(2) & 80IB(4) of the Act, we find that provisions do not provide in any way separate registration or maintenance of separate records for claiming deduction u/s 80IB of the Act. The requirement under section 80IB(1), 80IB(2) and 80IB(4) is that profit must derive from an industrial undertaking. It was held in the case of Textile Machinery Corporation Ltd. 107 ITR 195 (SC) that the new industrial undertaking must be a new emergence of a physically separate industrial unit which may exist on its own as a viable unit and in order to do so following facts have to be established by the assessee:
(i) Investment of substantial fresh capital in the Industrial undertaking set up.
(ii) employment of requisite labour therein.
(iii) manufacture or production of articles in the said undertaking.
(iv) Earning of profits clearly attributable to the said new undertaking, and
(v) a separate and distinct identity of the industrial unit set up.
It was also held that unit may produce its products of the old business or it may produce some other distinct marketable products even products which may feed the old business. It was held that true test is whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business. There must be a new emergence of a physically separate industrial unit which may exist on its own as a viable unit.
11.2 It was held by the Hon’ble Madras High Court, in the case of CIT v. Premier Cotton mills Ltd. 240 ITR 434 (Mad) that a single legal entity may own and operate more than one industrial undertaking and the fact of common ownership does not render undertakings which are otherwise capable of being separate into a common undertaking. What is of relevance is the existence of all the facilities including factory buildings, plant, machinery godowns and things which are incidental to the carrying on of manufacture or production, all of which are capable of being regarded as an industrial undertaking. When an existing industrial undertaking is substantially expanded and the manner of such expansion is such that the newly installed plant, machinery and other facilities such as factory buildings, godowns etc; when taken together are capable of being regarded as industrial undertaking, the requirements of the section are met. The fact that the industrial undertaking so established by way of substantial expansion is at a location which is adjacent to the existing undertaking would not in any way render such an undertaking any the less a new undertaking for the purpose of determining its eligibility under section 80J of the Act.
11.3 It was also held in the case of CIT v. Mahan Foods Ltd. 216 CTR 148 (Del) that only capacity was increased in that case and there was expansion of old business with some modifications. In this regard, it was held that as far reconstruction of the business, it is nowhere evident that the old industrial unit was split up or damaged or destroyed that was supposedly reconstructed as a new unit by the assessee. What the assessee has done is to set up an industrial undertaking with latest technology and with increased capacity and of course, with fairly good amount of fresh investment. The formation of the new undertaking is not as a consequence of the transfer of the plant and machinery of the old business. The value of the plant and machinery utilized in the new undertaking has been less than 20% of the total investment. Thus, the assessee’s case does not get disqualified under these provisions. Therefore, in this view of the matter, the conclusion is inevitable that the assessee was entitled to deduction under section 80IA in respect of the profits of the new Industrial undertaking having satisfied the conditions.
11.4 The ITAT Mumbai Bench in the case of JCIT v. Associated Capsules (P) Ltd. reported in 114 ITD 189 (Mum.) has held organizational features, such as the legal status of the unit or the fact that they are controlled or managed by common management or located in the same premises, where existing units are located to derive certain advantages or are producing similar goods as the existing ones are hardly relevant to decide whether a unit is in the nature of undertaking. Likewise, the fact that procurement of raw materials is common or certain post-manufacturing activities are centrally carried out or drawing certain facilities from a common source are not as rightly pointed out by the ld. CIT(A), sufficient enough to hold that each unit is not engaged in manufacturing or producing the articles or things or is not independent or separate from other. The findings recorded by the ld. CIT(A) that the unit in question is separately and independently engaged n the production of capsules on its own have not been shown to be incorrect or based on no material. It is also not disputed that each undertaking has not only produced the capsules but also derived the profits and gains from them. The department has also not rebutted the assessee’s submission that it has treated each undertaking as separate and independent in its accounts. It is also not the case of the department that any of the negative tests laid down in section 80-I(2) is attracted in the case before us. It was held that findings recorded as also the order passed by him and consequently ground taken by the department, was dismissed.
11.5 In the case of CIT v. Quality Steel Tubes Pvt. Ltd. 280 ITR 254 (All), it was held that a new project was set up but no separate profit & loss account prepared. According to the AO, the common use of the two projects of the land, building, splitting machine, galvanized plant, threading machine, store room, workshop, generating set and factory office proved that it was a case of splitting up of the old business. On the aforesaid fact, merely because some of the facilities were common that would not mean reconstruction or splitting up.
12. From the reading of the decisions of various courts of law mentioned hereinabove, we are of the view that expansion of an industrial undertaking is not a bar for claim of deduction u/s 80IB of the Act. The same product or same location, common procurement, manufacturing and common employees cannot be the basis to hold that the assessee was not an industrial undertaking viable and separate undertaking. What is important is that there must be a set up of independent and separate viable undertaking. In this regard, the assessee has placed on record that it has made separate investment in the plant & machinery account and the building which is evident from the separate financial statements placed on record by the assessee alongwith return of income. The investment in the Plant & machinery and building at the beginning of the year in dispute and at the close of the year in Unit-2 & Unit-3 are available in PB-1 filed by the assessee. From the perusal of the same, it is evident that the assessee has made fresh investments both for building and plant & machinery for setting up of the industrial undertakings. Such fact of the investment in both building and plant & machinery has not been disputed by any of the authorities below or before us. There is no dispute as regards to the separate registration granted by DIC to the assessee with regard to Unit-II where date of commencement of production for Unit-II has been certified as 2.5.1999. The DIC vide letter dated 29.03.2002 has granted the approval for installation of machinery and had stated that production commenced on 28.03.2003. In view of investment in building and plant & machinery, it is evident that the assessee has set up two industrial undertakings as Unit-2 & Unit-3. The assessee has furnished separate profit & loss account supported by separate production records to show that profit is derived from the industrial undertaking for which there is no adverse finding by the A.O. The AO had made the inquiries from Statutory Authorities as mentioned hereinabove and ld. counsel for the Revenue had referred to various provisions of ‘The Insecticides Act, 1968 and Insecticides Rules 1971 by giving specific reference to section 13, Rule 9(1) to Rule 9(3) etc. A reading of such provisions and section 13 which provides that any person desiring to manufacture or to sell stock or exhibit for sale or distribute any insecticide may make an application to the licensing officer for the grant of a license. Under Rule 9(1), such application has been made in Form III or Form IV for grant of license. Therefore, application has been made by a person desiring to manufacture or to sell stock , or exhibit for sale or distribute any insecticide. The application not been made by any industrial undertaking per se in fact, sub-rule(2) of Rule 9 is provides, if an insecticide is proposed to be manufactured at more than one place, separate applications shall be made and separate licenses shall be issued in respect of every such place. In the instant case, the manufacturing is being done by the three separate undertakings at the same place i.e. within the same compound and is not a case where insecticide is manufactured at more than one places and as such, one common license has been obtained by the assessee company. In view of the above, it is obvious that no separate registration is required to the assessee company.
13. As regards the inquiries made during the assessment proceedings especially with Central Excise Authorities with regard to the reply dated 24.12.2007 of the Central Excise Division, Jammu that there is only unit registered with Central Excise Department. The said Department has confirmed that there were expansions carried out. In this regard, we are of the view that inspite of such reply, the fact doest not in any manner detract from the claim that independent undertaking was not set up by the assessee, since neither the AO nor the ld. counsel for the Revenue has brought on record that as per Central Excise Act, separate registration is required, if the assessee is manufacturing a different products at the same place, when they have different undertaking. In the case of J & K Synthetic Limited; reported in (1991) 52 E.L.T. 116 (Trib) relied upon by the Ld. AR (supra), it was held that if two units falls within one premises then only one consolidated license for the manufacture of goods has to be obtained as the object behind the grant of consolidated license is that any person manufacturing different excisable goods within one factory area is entitled to obtain one license instead of different licenses for different commodities. The Ld. counsel for the Revenue, Mr. Girish Dave, has referred to the adjudication order of Central Excise, dated 09.03.2004, where as per that order appellant was to refund excise duty under Notification No.56 of 2002 of Central Excise Act. This notification does not in any manner show that the undertaking set up by the appellant was not independent undertaking. Therefore, this will not lead to any inference that the undertaking set up was not an independent undertaking. As regards the reply of letter dated 27.12.2007, it has specifically been mentioned that there is only one unit in the name of M/s. FIL Industries Limited and assessment is done as one unit only. If there had been three units then separate assessment for each unit needs to be done. Yes, each unit should be separately registered with Commercial Tax Department and yes, separate TIN should be different for each Unit. The above reply was in pursuance to the letter from the A.O. dated 24.12.2007 wherein it was inquired and was asked specific question to explain what would have been the position if the assessee had three different units registered and running from the same place where assessment in all the three units were made as one unit. From the perusal of the questionnaire and the reply, it is evident that if the assessee had three different units registered with Commercial Tax Department, it is only then three separate assessments for each unit were required to be done. However, when one unit is registered, there is no justification of three assessments are required to be made. From the perusal of record, we are of the view that nothing has been brought on record by the AO or by the Ld. CIT(A) or by the ld. counsel for the Revenue to show that the assessee was required separate registration for claiming deduction under section 80IB of the Act.
13.1 Section 6A of the Jammu & Kashmir Sales Tax Act, 1962 provides for provisional registration of the business of any person who intends to establish a business in the State of Jammu & Kashmir for the purpose of manufacturing or producing goods. Under this Act, registration is required of the business and not of the each of the separate undertaking at the same place of the assessee. As regards reply of the Inspectors of Factories and Boilers, the same cannot help the Revenue. As regards the Insecticides Act, 1968 and Insecticides Rules, 1971, under Rule 9(2) if manufacturing activities are carried out at more than one place, only then separate registration is required whereas the assessee is carrying out manufacturing only from the same premises as different units. Now the question arises whether any requirement under different provisions of different Acts can be a pre-condition to allow deduction u/s 80IB of the Act, especially when the assessee had fulfilled all the requirements of section 80IB of the Act. We are convinced with the arguments made by the ld. counsel for the assessee, Mr. C.S. Aggarwal, Advocate that section 80IB(3) of the Act read with Explanation (g) to section 80IB(14) of the Act, which specifically provides for fulfillment of condition u/s 11B of Industries (Development and Regulation) Act, 1951. Under section 80IB(3) read with Explanation (g) to section 80IB(14), if read show that deduction can only be claimed if the assessee is a small scale industrial undertaking under section 11B of the Industries (Development and Regulation) Act, 1951. Thus, under section 80IB(3) of the Act, there is specific pre condition whereas there is no such pre-condition in section 80IB(4) of the Act, if read with section 80IB(2) of the Act. In view of our findings hereinabove, we find that there is no requirement for the assessee to obtain separate registration for each of the three industrial undertakings, having established new industrial undertaking by way of fresh investment of building and plant & machinery and therefore, it cannot be held that undertakings are not eligible to claim deduction u/s 80IB of the Act. We rely upon the decision of Hon’ble Gujarat High Court in the case of CIT v. Saurashtra Cement and Chemicals Industries Limited reported in 123 ITR 669 in this regard. Also, we rely upon the decisions of various courts of law i.e.
(i) CIT v. Paul Brothers 216 ITR 548 (Bombay)
(ii) G.B. Bros and Konda Rajagopala Chetty v. ITO 262 ITR 774 (AP)
(iii) CIT v. Bhilai Engineering Corporation (P) Ltd. 133 ITR 687 (MP)
(iv) ITO v. Laxmi Packers [2007] 14 SOT 303
that once deduction has been allowed in the initial assessment year, it cannot be re-examined in the succeeding assessment years. As regards the initiation of proceedings u/s 147 of the Act, it was stated when Unit-2 was set up in assessment year 2000-01, no such proceedings were initiated and the proceedings for the assessment year 2001-01 had attained finality, though it cannot be reopened on period of limitation as argued by the ld. counsel for the assessee under section 149 of the Act. As regards the principles laid down by the various courts of law, the issue is with regard to formation of industrial undertaking has been examined in the initial assessment year and once the claim has been allowed especially under assessment u/s 143(3), the same cannot be denied in the succeeding assessment year without first recording of any adverse finding of the year of formation. There is no citation referred by the Ld. counsel for the Revenue to take a different view on the matter. Accordingly, we uphold the claim of the assessee u/s 80IB of the Act, which is in accordance with law.
13.2 As regards the claim of deduction u/s 80IB of the Act with regard to the evidence that survey conducted on 05.03.2008 at the premises of the Auditors’ M/s. K.S. Aggarwal & Co., after the completion of assessment proceedings and it was argued that such evidence cannot be considered by the Ld. CIT(A) in the absence of the enquiries by ld. CIT(A) under section 250(4) of the Act and the AO could not lead any additional evidence under Rule 46A of the Income Tax Rules, 1962. The Ld. counsel for the Revenue, Mr. Girish Dave, however, opposed the arguments by stating that powers of the Ld. CIT(A) are co-terminus with that of the A.O. In this regard, we rely upon the decision of the co-ordinate Bench in the case of Mitsui Co. Ltd. v. ACIT, New Delhi (supra) placed on record wherein it has been held that such evidence as collected the post completion of assessment by the AO, could be considered in the appellate proceedings in the absence of requisite order under section 250(4) of the Act by the Ld. CIT(A).
13.3 As regards reliance in the case of UOP LLC v. Additional Director of Income Tax 108 ITD 196 (ITAT, Delhi) (supra) by the Ld. counsel for the Revenue, we find that in the said order, the Revenue as respondent moved an application under Rule 29 of the I.T.A.T. Rules, for admission of additional evidence. It was held that the Tribunal has the power to allow additional evidence, not only if it requires such evidence to enable it to pronounce judgment, but also for any other substantial cause. The said decision is not applicable as the same had been rendered in the context of Rule 29 of the ITAT Rules and there is no corresponding Rule before the AO to move any additional evidence before the ld. CIT(A). On going through Rule 46A of the I.T. Rules, 1962, it is evident that it grants right only to the assessee to furnish additional evidence subject to the conditions laid down therein. As per section 250(4) and Rule 46A(4), the powers are conferred on the Ld. CIT(A) to conduct inquiry and there is no provision for the A.O. to lead evidence before the Ld. CIT(A). The Ld. counsel for the Revenue has not stated any provision in the Income tax Act or in the Income-tax Rules, 1962 or any authority that any additional evidence in the absence of any direction of inquiry by the Ld. CIT(A) can be admitted by the Ld. CIT(A) or the A.O. can lead evidence of his own to the CIT(A) and the CIT(A) accepts such evidence. Though argument of the ld. counsel for the Revenue that powers of the CIT(A) are co-terminus with that of the AO, we are in agreement with such submissions and the Ld. CIT(A) can do what has not been done or direct him what he has failed to do, but does not expressly or impliedly give any power to the A.O. to lead any additional evidence before the ld. CIT(A) of his own. Therefore, in view of the decision of the co-ordinate Bench in the case of Mitsui Co. Ltd. v. ACIT 1806/D/05 for the assessment year 2001-02 referred to hereinabove and placed on record and in the absence of any finding u/s 250(4) and material gathered subsequent to the assessment cannot be considered in the appellate proceedings before the Ld. CIT(A) and no disallowance can be made on the basis of such material gathered at the post assessment stage.
13.4 As regards the result of survey conducted on 05.03.2008, the material gathered in the nature of statements recorded of employees of the assessee-company and the auditors Sh. K.S. Aggarwal and Sh. Aditya Aggarwal partners of M/s. K.S. Aggarwal & Co., which were recorded under section 133A of the Act. As per decision of Hon’ble Delhi High Court in the case of CIT v. Dhingra Metal works, reported in [2010] 328 ITR 384, any statement recorded under section 133A of the Act would have no evidentiary value. It was held that for a statement to have evidentiary value, the survey officer should have authorized to record sworn statement. It was noted that section 132(4) of the Act specifically authorizes an officer to examine a person on oath whereas section 133A does not permit the same. We rely upon the decision of the Hon’ble Kerala High Court in the case of Paul Methews & Sons v. CIT 263 ITR 101 (Kerala) and Hon’ble Madras High Court in the case of CIT v. S. Khader Khan Son [2008] 300 ITR 157 (Mad). Therefore, we are of the view that statement recorded during survey u/s 133A of the Act, cannot be used against the assessee, as the same did not have any evidentiary value. Reliance placed by the Ld. CIT(A) on such statements denying claim under section 80IB of the Act, cannot be approved.
13.5 As regards the statements recorded of employees, though they did not have any evidentiary value, we consider the statements recorded of various employees of the assessee company and Auditors’ of the Company. On perusal of the same, they do not warrant any inference that Unit-2 & Unit-3 were not set up as an industrial undertaking. Rather in the statement of Sh. M.C. Sharma, General Manager, who in his statement and answer to question Nos. 6, 7 & 8 has referred to Unit-II & Unit-III. From the perusal of the above statement, we are of the view that the assessee had set up three separate and independent Units.
13.6 As regards common records being maintained by such units, we are of the view that there is no requirement of separate books of account and it is not the condition precedent for claim of deduction u/s 80IB as has been held in the following judicial pronouncements.
(i) CIT v. Sree Krishna Pulversing Mills 241 ITR 262 (AP) wherein it was contended by the Ld. counsel for the Revenue that the profits of three units cannot be divided and the assessee is not entitled for the benefit under section 80HH and 80-I of the Act. It was held by the Court that we are unable to agree with the contention of the ld. counsel and this section does not contemplates the division of profits and gains in respect of a unit, provided the industrial undertaking satisfies the criteria laid down u/s 80HH.
(ii) In the case of CIT v. High Lamps Limited 190 ITR 553 (All), it was held that where the dispute was narrowed down and is confined only to whether, on the basis of the profit & loss account submitted by the assessee, the profit & loss of the new unit can reasonably be worked out or not for the purpose of computation of the benefit u/s 80J of the Act.
It was held that in view of a series of decisions, now there is no dispute that the provisions of section 80J of the Act do not envisage that separate accounts should be submitted in respect of the new unit and it was not necessary that separate accounts should be maintained. However, in the present case, separate accounts in the ledger had been kept by the assessee in respect of the new unit on the basis of which, profits have been determined.
(iii) In the case of Hind Tools & Dies (P) Ltd v. Fourth Income Tax Officer reported in 20 ITD 94 (ITAT Patna) (TM), the objection taken by the ITO was not correct that the relief could not be allowed because the assessee did not maintain separate accounts for the new unit. The profit of the new unit could be calculated on the commercial basis.
The second objection was also not justified that the assessee did not start a new and independent unit. The assessee was doing business since it took over the assets and liabilities of the firm. The expansion programme was taken up by the present assessee . The assessee as stated earlier has stated a new unit for which new machines were purchased and, therefore, this new unit of the assessee was eligible for relief u/s 80J.
13.7 The Ld. counsel for the Revenue, Mr. Girish Dave, fairly stated that there is no dispute to the ratio laid down of the above decisions, though in his opinion separate books of account are required to be maintained u/s 80IA(5) of the Act and in view of the decision of the Hon’ble Delhi High Court, in the case of Commissioner of Income Tax-III v. Sona Koyo Steering Systems Limited in ITA 1279/2008, dated 10.02.2010 (supra). In the said decision, it was held that deduction u/s 80IB is to be allowed without set off of loss from other unit. It was held that while computing the quantum of deduction under section 80IA(6) of the Act, only the profits shall be taken into account as if it was the only source of income. We find no dispute to the above proposition but this judicial pronouncement does not lead to an inference that separate record of each of the industrial undertakings are required to be maintained by the assessee company.
13.8 As regards the books of account were produced before this Bench and also which has not been disputed by any of the authorities below. The assessee has maintained separate production records on the basis of which separate books of account have been maintained by the assessee and profit & loss account has been drawn for each of the unit separately on the basis of which the assessee had determined its profit from each of the industrial undertaking. The AO has not rejected such books of account and has not disputed the profit & loss account of each undertaking.
13.9 As regards the statements and the replies which had been relied upon by the ld. counsel for the Revenue, while taking statements, they did not differentiate that each of the three undertakings belongs to the company. Apart from the said facts, the statements do not have any evidentiary value as held hereinabove, it is undisputed that the products are manufactured by the assessee company from its three independent undertakings in the same premises having separate building and separate plant and machinery. We find no inter-connection between these units. The said statements of the employees relied upon by the Ld. CIT(A) have been read in isolation by the Ld. counsel for the Revenue.
13.10 As regards the reliance on the statement of Sh. K.S. Aggarwal, statutory Auditors’ that he had not audited the books of account and the signature in the audit report are fabricated, which fact had been corroborated by the hand-writing expert Mr. D.D. Goel. In this regard, submission of the assessee is that statement of Sh. K.S. Aggarwal was recorded on 05.03.2008, in the course of survey, cannot be relied upon and it amounted to relying upon fresh evidence. Apart from the aforesaid submission, it was stated that Sh. K.S. Aggarwal has never been produced despite assessee’s request for cross-examination and no reliance can be placed on such statement. Therefore, it is necessary for the person, who seeks to rely upon such statement, has to produce the ‘deponent’ for cross examination, which in the present case was never produced despite summons having been issued to him by the A.O. In view of the decision of the Hon’ble Supreme Court, in the case of Kishanchand Chellaram v. CIT reported in 125 ITR 723 , such statement has to be excluded. Shri K.S. Aggarwal, Statutory Auditors’ of the assessee in the preceding year had not been denied by the AO during the assessment proceedings. The AO has never disputed either the accounts were not audited by Sh. K.S. Aggarwal, CA. The audit remuneration paid to Sh. K.S. Aggarwal and debited by an amount of Rs.20,000/- has been accepted.
13.11 As regards the report of the hand-writing expert is concerned, the hand-writing expert has compared the signatures of Mr. K.S. Aggarwal with the signatures that were put by him at the time of recording the statement and it is obvious that the signatures below statement would not have been correctly recorded by him to make distinction and thus cannot be made the basis. The assessee’s hand-writing expert compared his signatures with those signatures which were on record in respect of other companies where he too had audited the accounts. The Ld. CIT(A) has failed to examine this aspect of the matter. Also no proceedings under section 271B of the Act were initiated by the A.O. Had the accounts were not audited by the Auditors’, the AO would have initiated proceedings for having not got the accounts audited as per law. The President of the Company Mr. Navin Prothi and Mr. Neeraj Karwall Counsel, in his statement had confirmed on the day of survey that M/s. K.S. Aggarwal & Co., CAs are the statutory auditors’ of the company. This fact has been ignored by the Ld. CIT(A).
13.12 As regard the reliance placed by the Ld. counsel for the Revenue on the judgment of the Hon’ble Supreme Court in the case of State of Gujarat v. Saurashtra Cement and Chemical Industries Ltd., [2003] 260 ITR 181, in that case the respondent assessee has sought exemption from the levy of electricity duty under Bombay Electricity Duty Act, 1958, on the ground that it had set up a new industrial undertaking. It was held that new industrial undertaking under Explanation 1 to clause (ii)(c) of section 3(2) (vii)(b) is defined to be an expansion of existing business of undertaking in the State. Therefore, it is an expansion of the existing business of new industrial undertaking under the Bomaby Electricity Duty Act, 1958. But there is no such restriction under section 80IB of the Act and hence, denial of exemption to the respondent by Explanation 1 to clause (ii)(c) of section 3(2) (vii)(b) cannot be the basis that the appellant had not set up independent and viable undertaking. The Hon’ble Curt in that case had held that new unit was not totally independent of the existing unit. The conclusion was based on the order dated 29.08.1975 of the Collector that the respondent was making use of existing mills etc. There are no such findings in the present case.
13.13 As regards the decision relied upon by the Ld. counsel for the Revenue in the case of Jt. CIT v. Thirani Chemicals Ltd. [2010] 40 SOT 531 (ITAT, Delhi), where the facts were that the so called expanded new plant and machinery were installed in the existing building, on same process line up and infrastructure and new equipments were connected to the old machinery set up. It was, thus, held that no independent and distinct unit came into existence for the purpose of claiming deduction either u/s 80HH or u/s 80-I. The facts of this judgment are totally not applicable to the case of the present assessee.
13.14. In the decision in the case of C.I.T. v. Wipro Ltd; reported in [2011] 334 ITR 6, it was held that where the assessee claimed deduction under sections 80HH & 80-I of the Act on the ground that it had established a new factory for manufacturing industrial vanaspathi. However, the AO found that the assessee was modernizing the existing unit by adding new machinery to the existing plant considering the value of the new machinery and utilizing the same machinery. Thus, it was held that the assessee was not entitled to claim deductions us/ 80HH and 80-I of the Act. There was no such moderanisation in the case of the present assessee.
14. The judgments relied upon by the Ld. counsel for the Revenue have no application to the facts of the present assessee’s case. In view of findings hereinabove, denial of deduction under section 80IB of the Act amounting to Rs.7,01,56,903/- is deleted. Thus, ground Nos. 1 to 4 and 7 & 7.1 of the assessee are allowed.
15. As regards ground Nos. 5 & 5.1 relating to the disallowance of claim under section 80IB of the Act, amounting to Rs.3,10,11,113/- in respect of the refund of excise duty , the A.O. has observed that the assessee is not eligible for refund of excise duty being income ‘not derived from the industrial undertaking’ but the income attributable to the receipt of excise duty refund from the industrial undertaking.
15.1 On appeal, the learned CIT(A) confirmed the action of the Assessing Officer.
15.2 It was argued by the ld. counsel for the assessee, Mr. C.S. Aggarwal, Advocate that the issue in dispute is squarely covered by the decision of the Hon’ble Jurisdictional High Court of Jammu & Kashmir, in the case of Shree Balaji Allows v. CIT and Another [2011] 333 ITR 335 (J&K) where it has been held that the Excise Duty Refund is to be treated as ‘capital receipt’ and not liable to be taxed.
15.3 The Ld. counsel for the Revenue, Mr. Girish Dave did not dispute the arguments made by the ld. counsel for the assessee.
16. We have heard the rival contentions and perused the facts of the case. We are of the considered view that the issue stands covered by the decision of the Hon’ble Jurisdictional High Court of Jammu & Kashmir, in the case of Shree Balaji Allows v. CIT and Another [2011] 333 ITR 335 (J&K) where it has been held that the Excise Duty Refund is to be treated as ‘capital receipt’ and not liable to be taxed. Respectfully following the said judgment of Hon’ble J & K High Court, refund of excise duty of Rs.4,66,88,681/- is held to be as ‘capital receipt’. This ground of the assessee is allowed accordingly.
17. As regards ground No.6 with regard to the claim of deduction u/s 80IB(11A) of the Act, in respect of a sum of Rs.11,58,611/- in respect from profits and gains derived from and undertaking, namely, M/s. Kohinoor Agro Products, Controlled Atmospheric Cold Storage Plant (In short “CA Stores”).
17.1 The brief facts are that the AO disallowed exemption in respect of CA stores established at Srinagar and the assessee has not understood the meaning of processing, preservation and packing. The processing here has been given the Dictionary Meaning i.e. bringing some change by series of operation. But did not consider the meaning by way of processing and preservation as two activities inter-relates and second follows first. If we follow the dictionary meaning, then the processing has no relation with preservation and therefore after processing fruit or vegetable according to the dictionary meaning, the preservation and packaging can not be of fruit but juice. According to the AO’s notion, there should have been processing of fruit, preservation and packaging of Juice. As per AO, the CA stores is being used for preservation of fruits in order to increase longevity and not changes are brought about. Therefore, when the assessee cannot claim that it is involved in the processing of fruit and accordingly the AO denied deduction u/s 80IB(1IA) of the Act.
17.2 The Ld. CIT(A) vide pages 90 & 91 of his order has confirmed the action of the Assessing Officer, which for the sake of clarity is reproduced as under:
“On due consideration of the facts and circumstances, the appellant company’s submissions, the AO’s order and remand reports, I find that the submissions made by the appellant in this respect are devoid of merit and thus not acceptable. Whereas the AO has given a detailed and valid reasoning for making the disallowance. As per the provisions of law, S.80IB(11A), deduction is available to an industrial undertakings deriving profit from the business of setting up and operating a cold chain facility for agricultural produce.
Apparently, the appellant’s unit has not derived its income from the activity stipulated in the section. As per the provisions of section 80IB (IIA), the undertaking deriving profit from the business of processing, preservation and packaging of fruits or vegetables is eligible for deduction subject to conditions mentioned therein. The eligible undertaking is required to be involved in all the above three activities i.e. processing, preservation and packaging of fruits. In case even one activity out of the above three is not carried out by the undertaking, it would not be eligible for deduction u/s 80IB(11A) of the Act.
Apparently, the appellant company is not involved in the processing of fruits. Besides, no change is brought about in the fruits which are kept in CA stores. Hence, it can not be said that the appellant is involved in the processing of fruits. In this respect the case laws, i.e. CIT v. Casino (P) Ltd., 91 ITR 289 (Kerala), V.M.. Salgaocar Bros (P) Ltd. v. CIT 217 ITR 849 (Kar) and Singh Engineering Works (P) Ltd. v. CIT, 119 ITR 891, relied upon by the AO, also support the case of the Revenue.
Therefore, considering the fact that in the case of the appellant company, no change or altering of Form of the fruits has taken place, I hold that the appellant company’s undertaking is not engaged in the activity relating to processing as specified u/s 80IB of the Act. Since the mandatory conditions, as specified in the section 80IB(11A) has not been fulfilled, it is not eligible for deduction amounting to Rs.11,38,611/- on account of profits and gains derived from its undertaking i.e. CA Stores, Srinagar. Thus, I hold that the AO is justified in disallowing the claim of deduction u/s 80IB(11A) amounting to Rs.11,58,611/- made by the Kohinoor International Agro Products, controlled Atmospheric Stores, Srinagar and adding the same to the income of the appellant. The AO’s action is upheld and the appeal of the appellant is dismissed on this ground.
Besides, the observations regarding genuineness and authenticity of Audit Report have been given while dealing with the ground No.1 of the appellant company’s appeal which are much relevant in respect of the claim of deduction u/s 80IB(11A) in the case of the appellant company.
The appeal of the appellant company is, thus, dismissed on this ground.”
17.3 The Ld. counsel for the assessee, Sh. C.S. Aggarwal argued that the undertaking is engaged in the business of raw fruits direct from the harvest, processing of the fruits and vegetables by washing, segregating, spraying of fungicides and thereafter de-watering and only thereafter such fruits are taken for preservation and storage. It was argued that processing is a much wider concept. The nature and extent of processing may vary from case to case. Processing means subjecting a commodity to a process or treatment so as to develop it or make it fit for the market. He invited our attention to page 263 of the flow chart, where it was shown that the assessee gets apples harvested and such harvested apples are placed at specially manufactured plastic trays in order to enable it to get it deheated from the atmospheric conditions before transportation of apples. If such fruits are not kept in the specially designed trays, the fruits loose its longevity.
17.4 The Ld. counsel for the Revenue, Sh. Girish Dave, on the other hand, placed material on record to demonstrate technical aspects of the CS Stores especially publication by one Mr. Adel A Kader Department of Pomology, University of Callifornia. The Ld. counsel for the Revenue argued that it would be appropriate to examine the technology being maintained by the assessee to understand in detail whether CS stores can come within the ambit of an industrial undertaking deriving profit from the business of processing of vegetables as per section 80IB(11A) of the Act.
18. We have heard the rival contentions and perused the facts of the case. From the facts on record, we observed that the assessee is engaged in the preservation and packaging but there is not processing of fruits. Since there is no change brought about in the fruits and we observed that none of the authorities below have appreciated the matter in right perspective in view of the technical material placed by the Ld. counsel for the Revenue. Therefore, in the facts and circumstances , we set aside the issue to the file of the AO for re-adjudication with specific reference by keeping into consideration the technical material placed on record by the Ld. counsel for the revenue, Mr. Girish Dave and in view of the provisions of law but by affording adequate opportunity of being heard to the assessee. Thus, ground No.6 of the assessee is allowed for statistical purposes.
19. As regards ground Nos. 8 & 8.1 with regard to disallowance made of Rs.8,88,046/- on account of Directors Foreign Traveling expenses, which had been claimed by the assessee to have been incurred during the course of business and is allowable deduction. The A.O. for the reasons mentioned in his order has given finding that the assessee has failed to establish the purpose of visit and that it had not been incurred for the purpose of business. It was also admitted by the ld. counsel for the assessee that during the course of assessment proceedings the assessee did not have any evidence to substantiate its claim that the expenditure incurred is wholly and exclusively for the purpose of business.
19.1 It was argued by the ld. counsel for the assessee, Mr. C.S. Aggarwal, Advocate, that the expenditure has been incurred for the purpose of business. Mrs. Ruhi Tariq was not drawing any remuneration and thus could not be made a basis for disallowing the claim of the assessee since she was not Director of the assessee-company. The expenditure has been incurred wholly and exclusively for the promotion of export business and import of plant and machinery as having incurred in earlier years and had been allowed.
19.2 The Ld. counsel for the Revenue, Mr. Girish Dave, on the other hand, argued that in the absence of any evidence and relying upon the orders of the Ld. CIT(A) and the AO, opposed the arguments of the ld. counsel for the assessee. He relied upon the decision of the Hon’ble Bombay High Court, in the case of C.I.T. v. Bhor Industries P. Ltd reported in [2006] 284 ITR 319.
20. We have heard the rival contentions and perused the facts of the case. From the perusal of the order sheet dated 19.12.2007, which was read by Mr. Girish Dave during the course of hearing and from the same, it is evident that the assessee had failed to explain specific expenditure amounting to Rs. 2,00,209/- incurred by Mrs. Ruhi Tariq and Mr. M.S.T. It was conceded during the course of assessment proceedings by the assessee the disallowance of the said expenditure of Rs.2,00,209/- . In view of the fact and circumstances of the case, mentioned hereinabove, action of the Ld. CIT(A) is confirmed with regard to expenditure of Rs.2,00,209/-.
As regards the remaining expenditure, the assessee is engaged in the business of export and import of apples juice. The assessee being 100% EOU and these facts have not been considered by any of the authorities below and having regard to the volume and genuineness of expenditure not in dispute, we are of the view to allow 35% of the remaining expenses amounting to Rs.6,87,837/-. The AO is directed accordingly to allow the said expenditure. Thus, ground Nos. 8 & 8.1 are partly allowed.
21. As regards ground No.9 of the assessee with regard to disallowance of Rs.11,43,293/- for claim of depreciation on CS stores and Tetra Division, the facts are that the expenditure amounting to Rs.42,63,926/- on account of material for mezzanine floors was included by the assessee in the plant and machinery scrap and depreciation has been claimed as per rates prescribed for the plant and machinery in the Income Tax Rules, 1962. Similarly expenses of Tetra Division of M/s Kohinoor International Agro Products amounting to Rs.1,09,79,993/- on account of erection material and construction were included in the plant. The depreciation was claimed at the same rate. The AO recomputed the same at 5% instead of 12.5% claimed by the assessee and accordingly made the disallowance of Rs.11,43,293/-. On appeal, the action of the AO was confirmed by the Ld. CIT(A).
22. We have heard the rival contentions and perused the facts of the case. This is not under dispute that the construction material in respect of CS Stores was utilized for construction of mezzanine floors which is, in fact, is a part of the plant and machinery. Similarly, it has not been disputed that the erection material and construction material in Tetra Division was for the addition to the plant and not to the building. The AO has gone with the assumption and the nature of the expenditure since the expenditure is on the construction material and erection material and therefore, it has to be treated as part of building. Once the said expenditure is part of the plant and machinery, which is not under dispute, such expenditure necessarily has to be part of plant and machinery and depreciation as claimed has to be allowed. Therefore, in the facts and circumstances, the order of the ld. CIT(A) is reversed and the A.O. is directed to allow the claim raised by the assessee. Thus, ground No.9 of the assessee is allowed.
23. As regards ground No.10 with regard to disallowance of Rs.42,123/- representing employees contribution to Provident Fund in view of section 2(24)(x), read with section 36(1)(va) of the Act.
23.1 In view of the judgment of Hon’ble Supreme Court of India in the case of CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306, the entire employees contributions to provident fund paid during the year, which is under dispute, has to be allowed. Thus, the order of the ld. CIT(A) is reversed on this issue and the A.O. is directed to allow the claim of the assessee. Thus, ground No.10 of the assessee is allowed.
24. As regards ground No.11 with regard to confirming levy of interest charged under section 234B of the Act, it was argued that interest is not leviable as per Notification No.275/12/2007 issued by the CBDT under section 119(2)(a) of the Act. The Ld. counsel for the Revenue, Mr. Girish Dave, fairly conceded and stated that no interest is leviable in view of the above instruction.
24.1 We have heard the rival contentions and perused the facts of the case. In view of Notification No.275/12/2007 dated 26.04.2007, which was perused by us and in view of the same notification which provides waiver of interest u/s 234B upto the assessment year 2007-08in respect of the assessee residing in Kashmir and having their principal place of business in the Kashmir Valley. Accordingly, levy of interest under section 234B of the Act is in conformity with the instruction issued by CBDT which is binding in nature. Such interest u/s 234B of the Act in the present case cannot be levied. Therefore, order of the ld. CIT(A) is reversed on this issue and the AO is directed to delete the same. Thus, ground No.11 of the assessee is allowed.
25. As regards the additional ground, the claim of the assessee is loss of 100% EOU of other industrial undertaking. The claim of the assessee is supported by the decision of the Hon’ble Bombay High Court in the case of CIT v. Galaxy Surfactants Ltd. reported in [2012] 69 DTR (Bom) 42, wherein it has been held that unabsorbed depreciation can be carried forward to subsequent year does not militate against the entitlement of the assessee to set off a loss which is sustained by an eligible unit against the income arising from other units under the same head of profits and gains of business or profession.. The legislature not having introduced a statutory prohibition, there is no reason to deprive the assessee of the normal entitlement which would flow out of the provision of section 70. Therefore, in view of the said decision of Hon’ble Bombay High Court, in the case of CIT v. Galaxy Surfactants Ltd (supra), it is evident that the assessee is entitled to set off of loss 100% EOU with the profits of other undertaking. However, as regards the quantum of loss, since the same has been raised for the first time before us and the claim of loss has not been verified, therefore the same is set aside to the file of the A.O., who will decide the issue on the basis of books of account of the assessee as per law but after affording adequate opportunity of being heard to the assessee. Thus, the additional ground of appeal of the assessee is allowed for statistical purposes.
26. In the result, the appeal of the assessee partly allowed.
