Assessee being a manufacturer substantial expansion was carried out in asst. yr. 2008-09 hence, initial assessment year would be refixed 2008-09 and assessee would be eligible to claim 100% deduction for next five assessment years and thereafter 25% for next 5 assessment years subject to restriction imposed under sub-section (6) of section 80-IC.
Since the deduction u/sec 80le shall not in any case exceeds 10 assessment years, as specified in sub section (6), the appellant shall be eligible to claim deduction upto A. Y. 2013-14 at rate of deduction as may be applicable.
FULL TEXT OF THE ITAT JUDGMENT
The Revenue has filed this Appeal against the impugned Order dated 25.8.2014 of the Ld. CIT(A)-VIII, New Delhi relevant to assessment year 2011-12.
2. The grounds raised in this Appeal read as under:-
(1) Whether on the facts & in the circumstances of the case & in law, the Ld. CIT(A) is justified in allowing 100% deduction u/s 801C.
(2) Whether on the facts & in the circumstances of the case & in law, Id. CIT(A) is justified in allowing the 100P/o deduction u/s 8BIC in the eighth year on the basis of expansion in the fifth year on the same unit which has already claimed 100% exemption in first five years whereas the I.T. Act clearly provides the 100% exemption for first five years & 25% exemption on the next five years whereas the Department has not accepted the 100% deduction from sixth year onwards.
(3) Whether on the facts & in the circumstances of the case & In law, Id. CIT(A) is justified in allowing 80lC exemption at 100% in eighth year on the basis of expansion of same unit in the fifth year after availing 100% exemption for first five years which means the unit will avail 100% exemption for 10 years and 25% exemption for next five years totaling exemption for 15 years which is against the provision of law which clearly says that any unit will claim exemption u/s 80lC for 10 years only from the initial assessment year as per provisions 80IC(3)(ii) as the unit is situated in Himachal Pradesh.
(4) Whether on the facts & in the circumstances of the case & in law, CIT(A) is justified in ignoring the observation and reasoning given by Assessing Officer in disallowing the deduction u/s 80lC on the other grounds as per the provisions of Section 80IC(4) of the I.T. Act, 1961.
5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in accepting the additional evidence under Rule 46A of the I.T. Act without giving an opportunity to the AO for representing revenue’s view on it.
6. That the order of the CIT(A) is erroneous and not tenable in law and on facts.
7. That the grounds of appeal are without prejudice to each other.
8. The appellant craves leave to add, alter, amend or forego any ground(s) of the appeal raised above at the time of the hearing.
3. The brief facts of the case are that the assessee was having income from salary, rental income from house property and interest income under the head income from other sources. Apart from above, the assessee is a proprietor of M/s Food & healthcare Specailities and is engaged in the business of manufacturing, processing and packing of food products (Glucon-D) and other food products at Batamandi, Ponta Sahib, Himachal Pradesh. He has also claimed short term capital loss on sale of mutual funds. In this case the return was filed on 30.9.2011 declaring total income of Rs. 43,09,145/-. During the course of assessment proceedings, the taxable income was further revised at Rs. 15,58,287/- vide submissions dated 1.8.2013 in its computation of income. The return of the assessee was processed u/s. 143(1) of the I.T. Act. As the case was selected for scrutiny under CASS. Accordingly, notice u/s. 143(2) of the Act dated 7.9.2012 was issued. Due to change of incumbent notices u/s. 143(2) and 142(1) of the Act alongwith detailed questionnaire dated 23.7.2013 were issued and served upon the assessee to file necessary details. In response thereto, the A.R. of the assessee attended the proceedings from time to time and furnished the details/ information. Books of accounts were also produced. The same were examined by the AO and he observed that assessee is carrying on job work for HEINZ and has not carried out any manufacturing activity during the year under consideration. Nor any substantial expansion u/s. 80IC has been carried out by the assessee in FY 2007-08 to claim the benefit of 100% tax exemption beginning from AY 2009-10 onwards. Therefore, the claim of the assessee u/s. 80IC of the Act was rejected and amount of Rs. 6,71,37,497/- was added to the returned income of the assessee and assessment was completed vide order dated 29.3.2014 u/s. 143(3) of the Act. Against the aforesaid assessment order, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 25.8.2014 has deleted the addition in dispute and partly allowed the appeal of the assessee. Aggrieved with the order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal.
4. Ld. DR relied upon the Order of the AO and reiterated the contentions raised in the grounds of appeal. He further stated that assessee is carrying on job work for HEINZ and has not carried out any manufacturing activity during the year under consideration and nor any substantial expansion u/s. 80IC has been carried out by the assessee in FY 2007-08 to claim the benefit of 100% tax exemption beginning from AY 2009-10 onwards. Therefore, the claim of the assessee u/s. 80IC of the Act was rightly rejected and amount of Rs. 6,71,37,497/- was added to the returned income of the assessee, which does not need any interference.
5. On the contrary, Ld. Counsel of the assessee relied upon the order of the Ld. CIT(A) and stated that he has passed a well reasoned order. He filed a copy of Paper Book containing pages 1 to 52 in which he has attached the copy of assessment order passed u/s. 143(3) dated 31.10.2011 in the case of the assessee for AY 2009-10; copy of CIT(A) order dated 18.7.2013 in the case of assessee for AY 2009-10; Copy of ITAT order dated 29.7.2016 in the case of assessee for AY 2009-10; copy of assessment order passed u/s. 143(3) dated 8.2.2013 in the case of assessee for AY 2010-11; copy of show cause notice u/s. 263 dated 12.9.2014 in the case of assessee for AY 2010-11; copy of order u/s. 263 dated 19.2.2015 in the case of assessee for AY 2010-11 and copy of assessment order passed u/s. 143(3) dated 23.3.2015 in the case of the assessee for AY 2012-13. We note that in the aforesaid orders, the authorities have allowed 100% deduction u/s. 80IC of the Act, as claimed by the assessee in the previous year as well as in succeeding year. We find that in the instant year, Ld. CIT(A) has elaborately discussed the issues in dispute from page no. 3 to 12 while dealing with ground no. 1 to 3 raised before him. For the sake of convenience, we are reproducing herewith the relevant portion of the finding of the Ld. CIT(A) as under:-
“Ground nos. 1 and 2 In these grounds of appeal, appellant has challenged the action of AO in disallowance of Benefit of 100% deduction claimed uls. 80lC of the Income Tax Act of Rs. 6,17,37,497.00/- and adding the same to the taxable income of the assessee.
During the course of assessment proceedings, the AO disallowed the claimed of 100% deduction on the ground that the appellant was doing “job work” for Heinz India Pvt. Limited. The appellant is manufacturing Glucon-D an allied product (Complan) and it is marketed by Heinz (lndia)(P) Ltd.
It is observed from the impugned assessment order that the dispute is as to whether the appellant is entitle to claim of 100% deduction of profits since the AO is of the opinion that the assessee is doing job work.
I have heard the Ld. Counsel, and considered the written submissions filled by him in argument to the AO’s observation and also considered the observations made by the AO in the impugned assessment orders.
The appellant has explained the detailed manufacturing process undertaken by the appellant to manufacture Glucon and other allied food products. As justified in various case laws relating to the definition and activity of term manufacturing and understanding the process of manufacturing undertaken by the appellant, it become crystal clear that Glucon and other allied food products are totally different and distinct from the raw material which goes into the manufacturing of product known as Glucon. It is an accepted principle of law that once from the fact that manufacture product known as Glucon is sold in the market with its manufactured, individual ingredients lose their character to form a uniform product as it is clear manufacture name. Also it is not possible to separate these ingredients since this is not the case of simply mixing the raw material as has been erroneously presumed by the Ld. AO. The appellant has submitted that the nature of the activity of the manufacture and process of manufacturing of Glucon and other allied products remain same as in the preceding assessment years.
The appellant has submitted that the manufacturing unit at Batamandi, Paonta Sahib, Himachal Pradesh is owned, controlled and managed by the appellant itself. The land and building, plant & Machinery is owned by the appellant and depreciation is being allowed on these assets by the AO right from the inception and starting of unit. The appellant has informed and submitted that right from the day. One appellant is registered as a manufacturer with various statutory and government bodies like Central sales tax department, Central Excise department, SSI registration with District Industries Centre and various authorities like Provident fund, Employees state Insurance, Weight & Measure Department etc. at Himachal Pradesh. This is the 5th year of claim of 80lC deduction by appellant.
The appellant has claimed that in view of the complete independent manufacturing set up of the appellant after complying with the regulatory formalities with various aforesaid government bodies in support of which the appellant has placed on records various registration certificates, approvals etc. granted to it by various government departments and these have been so granted not merely for the year under appeal but from the very first year A Y 2004-05 when the unit was set up. The appellant has also stated that the provision of section SOIC together with provision required to be complied with in terms of section 80IA has been complied particularly the provision contained in sub-section (5) and sub- section (7) to (12) of Section 80IA. Thus to prove the fact the appellant is manufacturer the appellant has taken care to comply with all the conditions as are necessary to be eligible to claim the deduction as an industrial undertaking in the special category state of Himachal Pradesh and this has been done by the appellant right from the day one of establishment of the unit and in the year under appeal (AY 11-12) the same nature and activity continued.
The appellant, in support of hi submission, has relied on the following case to ensure It this is a manufacturing activity:
1. Empire Industries Ltd. v. Union of India 1985 (2) BLR 179
2. CIT v. J.B. Kharwar and Sons, 163- ITR 394 (1987)
3. Sri Balaji Metal Finishers vs. ITO 15 ITD 26 (Hyd.)
4. ITO vs. A Joseph Louis 33 ITI? 485 (Mad)
5. Durandel Foods Pvt. Ltd. vs. ITO 6 ITD 207 (Hyd.)
6. Torrent Drugs & Chemicals Pvt. Ltd. vs. DC IT 64 TTJ 52 (Ahd.)
7. CIT vs. Sree Krishna Pulverising Mills 106 Taxman 347 (AP)
8. Aspinwall & Co. Ltd. vs. CIT 251 ITR 323(SC)
9. Decision of Central Excise and Gold Tribunal (CEGAT), Special Bench ‘D’, New Delhi in the case of Vijaya Packers V s. Collector of Central Excise 1993(07) LCX0073 dated 21.07.1993.
It is further observed from the paper filled by the appellant that the appellant is giving direct employment to local peoples. The salaries and terms and conditions of employment are settled by the assessee.
I have considered the above facts and various judgment of authorities as also relied by the appellant in which activity of such kind of manufacturing activity taken by the appellant tantamount to manufacturing and therefore I do not find any reason of not allowing the benefit u/sec 80IC on the ground that it was not manufacturing.
I also do not find any merit in the Ld. AO conclusion that the deduction u/sec 80lC could be denied because the appellant was doing job work for M/s Heinz. The appellant has strongly relied on the decision of the jurisdictional tribunal in the case of Gorawara Plastics and General Industries Pvt. Limited vs. DCIT 63
TT J 329 where the principle was exposited thus:
“There is no distinction between the activity for manufacturing on own account as also for the third parties, because the same process was involved in the manufacturing of electron guns on the part of itself in the preceding year. The only requirement of section 80-1 is that the industrial undertaking should manufacture or produce articles or things. The provisions of section 80-1 also nowhere specifically provide that the industrial undertaking owned by the assessee should engage itself in the manufacture of its own goods and not the goods belonging to other parties. If the industrial undertaking is engaged in the activity of manufacture or production of an article or thing, regardless of the fact that such article of thing belongs to the assessee or to some third. party for whom the assessee is doing such manufacturing or production activity on job basis, would be clearly entitled to grant of deduction under s. 80-/ provided other conditions mentioned in the said section are fulfilled”.
Thus I feel that to avail the benefit u/sec 80IC one may be the manufacturer irrespective of whether on own account or for third party and the fact of doing manufacturing for third party does not lead to non-eligibility of the deduction u/sec 80lC.
The appellant has relied in support of his claim on various case laws which are as under:-
In the above cited case laws, the claim has been disallowed by the AO on the ground the goods had been produced on job work basis for others. But as held by various Income tax section SOIC of the IT Act for the products manufactured by the appellant at Batamandi, Paonta tribunals and High Court, the deduction cannot be disallowed only on the ground that the assessee is manufacturing goods for others as also held by Hon’ble High Court of Delhi in case The appellant has submitted the certificate from Heinz India Pvt. Ltd. that it (Heinz India of CIT V s Northern Aromatics Ltd. (196 CTR Del 479).
The appellant has submitted the certificate from Heinz India Pvt. Ltd) that it (Heinz India Pvt. Ltd.) clearly stating that Heinz is neither eligible for and has not availed any benefits under Sahib, Himachal Pradesh during the period from November 2003 to November 2013.
The appellant has submitted a chart showing the year wise assessment starting from the very first year of operations i.e. A.y. 2004-05 and it was observed that the appellant is carrying out manufacturing activity since A Y 2004-05 and there has never been any dispute about it ( Annexure- A).
In view of the above the appellant is entitled to deduction U/S 80IC being a manufacturer.
In the result the grounds of appeal nos. 1 and 2 of the appellant are allowed.
Ground no. 3 relates to the disallowance of deduction made by the AO since the appellant has not set up a new unit as part of substantial expansion and there is no increased in the constructed factory area and staff employed.
The facts of substantial expansion is borne out from submission made by the appellant and while going through the facts and papers placed on records, it was observed that during the F.Y. 2007-0S, the unit has made investment in the Plant & Machinery ofRs.11,442,802/- which is equal to 63.44% (more than 50%) of the book value of the plant & Machinery at the beginning of the previous year in which substantial expansion undertaken i.e. as at 01.04.2007 which in present case equal to Rs. 18,036,875/-. As per the provision of the section 80IC(8)(ix), it is a substantial expansion and for the purpose of this section, the A. Y. 2008-09 relevant to the F. Y. 2007-08 in which such substantial expansion completes becomes the initial assessment year. Once it becomes the initial assessment year consequently under sub section (3), the assessee would be entitled to 100% deduction of profits and gains for a period of 5 years commencing from such initial Assessment Year i.e. from A. Y. 2008-09 to A. Y. 2012-13. It is observed from the submission made by the appellant that in A.Y. 2008-09, deduction of 100% was allowed by virtue of the being 5th year of operation and hence the deduction of substantial expansion was commenced from A.Y. 2009-10 and shall be allowed till A.Y. 2012-13.
The fact as emerging from the assessment order and the submissions of the appellant are that the substantial expansion was undertaken by the appellant at the existing unit and the AO is of the opinion that in order to have claimed the benefit of substantial expansion the appellant ought to have set up a new unit which it did not do so.
A bare reading of provisions of sub section (2) would reveal that “the deduction under the section is allowed in case of expansion by the existing units which undertake substantial expansion during the specified period of 7.1.2003 to 1.4.2012.”
After going through the submissions made by the appellant and on plain reading of Sec 80IC it is clear that in order to avail the tax benefit u/sec 80IC, the appellant need not required set up a new unit as part substantial expansion. The word ‘substantial expansion’ as defined u/sec 80IC(8)(ix), means increase in the investment in the plant and machinery by at least fifty per cent of the book value of plant and machinery (before taking depreciation in any year), as on the first day of the previous year in which the substantial expansion is undertaken. The Only requirement of the law for claiming deduction of-substantial expansion is to made investment in the Plant & machinery and same have been compiled by the appellant. Further there is no other requirement of the law for claiming deduction of substantial expansion.
Also there is no ambiguity in the law relating to the allowance of the claim of 100% tax benefit on account of substantial expansion subjected to the fulfillment of all the conditions specified in the act. It is observed from the submission filled by the appellant that the appellant has fulfilled all the conditions specified in the section of the act and therefore he shall be allowable to claim 100% tax benefit.
The appellant has also submitted that “We have religiously followed the definition of substantial expansion as mentioned in section 80IC (8)(ix) which is factually proved by reference to the relevant paper and documents available on records. Hence twisting of the terminology substantial expansion either by the department or by the assessee is not permissible within the framework of Income Tax Law.
In case the law makers has desired more detailed commentary or explanation or conditions attached with the concept of substantial expansion in that case the government would have come up with either specifically rules printed in Income Tax rules or CBDT would have issued a detailed circular to its effect. But neither the CBDT has issued any circular nor any specifically any rules have been printed. Hence the definition of substantial expansion as printed in the above section has to be read in line with the intention of the law makers.
With due respect we would like to submit before your honour that the meaning of substantial expansion has been crystallized and specifically mentioned by the law makers in the statue book itself, then neither the assessee nor the department got any right to interpret the concept of the substantial expansion based on illogically reasoning and irrelevant points. The Ld. AO has gone beyond its jurisdiction and has tried to mould the definition of substantial expansion as suitable.”
The appellant has also relied on the judgment of the Hon’ble judges of Delhi bench of ITAT in the case of M/s Tirupati LPG Industries Limited, ITA no. 991/Del/20 13, in which deduction of substantial expansion has been allowed twice by refixing the initial assessment year to assessment year relevant to the financial year in which substantial expansion completes second time. The decision says that “there is no suggestion in the language of the section that incentive u/s 80 IC is not available if the assessee substantially expands for a second or third time. Industrialists have to be encouraged to undertake substantial expansion.”
The appellant has submitted that “if we analyze the concept of substantial expansion in terms of its specific meaning as mentioned in clause (ixJ. of sub section (8) of the section 801C, it is crystal clear that increase in the investment of Plant & machinery by atleast 50% of the book value plant and machinery (before taking depreciation in any year), as on the first day of the previous year in which the substantial expansion is undertaken is the only criteria to determine whether or not there was substantial expansion. Any other reason or facts or circumstances are in no way relevant indeciding whether there has been substantial expansion of the industrial unit.
So the crux of the terminology substantial expansion rests only with one concept namely substantial expansion would be treated as substantial expansion only when there is increase in the value of plant and machinery atleast by 50% of the book value of plant and machinery. In the instant case of the appellant, the appellant has complied with the sole criteria of the section and has submitted relevant papers evidencing the substantial expansion namely the detail of addition made in the Plant & machinery, copies of the purchase bills evidencing the investment in plant & machinery & a CA certificate evidencing the same. The AD has nowhere challenged this investment. Although the provision of income tax act dealing with compliance with regards to substantial expansion only speaks about the obligation to be discharges by the appellant namely to increase the investment in Plant and machinery by atleast 50% but on papers and documents will revealed that we have increased the constructed area by 28444 sq ft. Prior to the expansion, the constructed area was 27770 sq ft which was increased to 562J4 sq ft after expansion. We have made an investment of Rs. 103.23 lacs in increasing the constructed area of the building. There has been increased in the power load also from 175 KW to 375 KW Also there has been increased in average numbers of employees deployed per day. Prior to the substantial expansion i.e. in A. Y 2006-07, on an average per day we have deployed 55 Nos of employees which were increased to 93 Nos. in F. Y 2007-08. There is 69.09 % increased in the employment during the F.Y. 2007-08 as compare to F. Y 2006-07.
Although all these points are not to be debated or discussed to come out to the conclusion whether or not the substantial expansion has taken place. But still we are giving the facts on records. “
It is believed that the appellant is correct in view of section 80lC. The concept of substantial expansion in terms of its specific meaning as mentioned in clause (ix) of sub section (8) of the section 80lC, it is crystal clear and there is no ambiguity in the law relating to the allowance of claim of 100% tax benefit on account of substantial expansion.
In response to the view taken by the AO in support of See 80lC(4)(i) that the unit was formed by splitting up or reconstruction of the business already in existence, the appellant has submitted that this is the only unit it is running since A Y 2004-05 and prior to that and till date there is no other unit run by it, hence the question of splitting up or reconstruction of the business already in existence does not arise. And also stated that nowhere the provision of Income tax law provide for establishment to set up a new manufacturing unit to claim the tax benefit of substantial expansion in term of the provision contained u/sec 80Ie of the said act.
After going through the provision of the Income Tax Act and explanation given by the appellant, I am in view the question of splitting up or reconstruction does not arise in the present case. Hence in my opinion the appellant is entitled to 100% deduction since it carried out substantial expansion in terms of Sec 80IC of The Income Tax Act, 1961.
The appellant has submitted a chart showing the year wise assessment starting from the very first year of operations i.e. A.Y. 2004-05. The appellant has submitted that as per the sub-section (3) of the section 80le, appellant shall be allowed deduction of 100% for the first 5 assessment year and 25% for the next 5 assessment years. During the A.Y. 2008-09 relevant to the F.Y. 2007-08 in which appellant has undertook substantial expansion at its unit and as per the provision of the clause (v) of sub section (8) of the said section, initial assessment year was refixed to A.Y. 2008-09 and appellant shall be eligible to claim 100% deduction for the next 5 assessment year and thereafter 25% for next 5 assessment year subject to the restriction imposed under sub section (6) of the section.
Since the deduction u/sec 80le shall not in any case exceeds 10 assessment years, as specified in sub section (6), the appellant shall be eligible to claim deduction upto A. Y. 2013-14 at rate of deduction as may be applicable.
From the submission made by the appellant and facts placed on records, AY 2011-12 is the 8th year of claiming deduction under the section 80IC and same shall be allowed till AY 2013-14. In the result the ground of appeal no. 3 of the appellant is allowed.”
6. On going through the aforesaid finding of the Ld. CIT(A) on the issues in dispute, we are of the view that CIT(A) has rightly deleted the addition in dispute and allowed the grounds raised by the assessee, which does not need any interference on our part. Therefore, we do not find any infirmity in the well reasoned order passed by the Ld. CIT(A) on the issues in dispute and hence, we uphold the finding of the ld. CIT(A) on this issue and accordingly, reject the ground no. 1 to 4 raised by the Revenue.
6.1 As regard the ground no. 5 relating to admission of additional evidence u/s. 46A of the Act is concerned, we find there is no mention in the impugned order of accepting any additional evidences. As it is evident that no additional evidences have been accepted by the Ld. CIT(A), the issue of contravention of rule 46A of the Income Tax Rules does not arise, accordingly, we dismiss the ground of appeal.
7. In the result, the appeal filed by the Revenue stands dismissed.