Brief of the Case
Bombay High court held In the case of M/s Vijay Udhyog vs. CIT that where two opinion or views are available and one of the view is taken by the AO, cannot be a basis for revision of order u/s 263. Also none of the clauses of section 80I(2)(i) to (iv) prohibit the assessee from taking other industrial undertakings on hire and use it for the purpose of manufacturing activity.
Facts of the Case
Assessee was a partnership firm carrying on business of manufacturing of pulses. It engaged a party for crushing of the raw material at a fixed rate per quintal. It was agreed that Assessee will make payment of all the wages of Labourers, cartgage and transporations expenses and also will meet the all liabilities towards various labour acts and factories act including repairing of machineries. Assessee claimed deduction u/s 80I of the Act which was also allowed by the AO. Later the deduction was challenged by the Commissioner u/s 263 on the ground that assessee is not owner of a new unit, in fact he taken a new unit on hire basis. This order was challenged before ITAT which held that it is covered under the purview of section 263.
Contention of the Assessee
The ld. Counsel for the Assessee relied on four judgments namely CIT vs. Max India Ltd. (2007) 295 ITR 282 (SC), CIT vs. LIC housing finance Ltd.(Bombay High Court) ITA No.604/2011 dated 12.09.2014 , Grassim Industries Ltd. vs. CIT (2010) 321 ITR 92 and CIT vs. Gabrial India Ltd. 203 ITR 108 (Bom). It was submitted by the assessee that when two views on any dispute exists, adoption of one view by AO cannot be defaulted u/s 263 by CIT.
It was also submitted that section 80I does not prohibit from taking machinery or plant on hire for the purpose of manufacturing activity. In support of this submission, judgments namely Griffon laboratories (P) Ltd. vs. CIT (1979) 119 ITR 145 (Cal), Addl. CIT vs. A. Mukherjee & Co. (P) Ltd. (1978) 113 ITR 718 (Cal) and Bezbaruah Tea Co. (P) Ltd. vs. CIT (1996) 220 ITR 530 (Gau) were relied upon.
Contention of the Revenue
The ld. Counsel of the revenue not challenged the judgments relied upon by the assessee but submitted that two opinions were not available. He also stated that section 80I has been inserted in the statute book with a particular object. The purpose to incentivize or inducement to new unit will not be meet if such arrangement is accepted. He relied upon section 80I(2)(i) to (iv). Revenue further claimed that a combined reading of these provisions clearly shows that unit must be a new unit to claim deduction .
Held by ITAT
The acceptance of two opinions on any dispute would deny the lower authorities access to Section 154, but, it cannot stop the CIT from invoking the provisions of Section 263 of the Income Tax Act.
Held by High Court
Following the Judgments quoted by the assessee, it is well established that where two opinion or views are available and one of the view is taken by the AO, cannot be a basis for revision of order u/s 263. Further the High Court held that the none of the clauses of section 80I(2)(i) to (iv) prohibit the assessee from taking other industrial undertakings on hire and use it for the purpose of manufacturing activity. Provisions in section 80I (1) & (2) are contained in taxing laws itself and so while interpreting its scope and extent , the words need to be strictly understood and interpretation should be in consonance with these provisions. It is clear from the judgments followed by the assessee that the manufacturer may hire a plant and machinery and employ hired labour and manufactured goods. Also division bench in the case of (1992) 196 ITR 813 (Bom) (CIT .vrs. Penwalt India Ltd.) and (1991) 191 ITR 92 (bom) (Cit .vrs. Anglo French Drug Co. (Eastern) Ltd) held that the manufacturing company needs not to be necessary to manufacture the goods by its own plant and machinery at its own factory.
Accordingly both questions answered in favor of assessee.