Case Law Details
IN THE ITAT HYDERABAD BENCH ‘A’
Deputy Commissioner of Income-tax, Circle 3(1), Hyderabad
Versus
Shree Nidhi Secure Prints (P.) Ltd.
IT APPEAL NOS. 321, 322, 339 & 340 (HYD.) OF 2010 & 385 (HYD.) OF 2012
[ASSESSMENT YEARs 2005-06, 2006-07 & 2008-09]
SEPTEMBER 28, 2012
ORDER
Saktijit Dey, Judicial Member – There are three appeals by the assessee and two appeals by the Revenue in this Bunch. There are cross-appeals – one by the assessee and the other by the Revenue- for the assessment year 2005-06 and 2006-07, which are directed against separate orders of the CIT(A) IV, Hyderabad, both dated 15.12.2009. There is also an appeal by the assessee for the assessment year 2008-09 which is directed against the order of the CIT(A) IV dated 30.12.2011. Since common issues are involved, these appeals are being disposed of with this common order for the sake of convenience.
2. At the outset, we may note that there is a delay in the filing of the two appeals by the Revenue, viz. ITA Nos.321 and 322/Hyd/2010, by one day. Considering the marginal nature of the delay and the explanation furnished by the appellant, we condone the delay and proceed to dispose of these appeals also on merits.
Revenue’s Appeal : ITA 321/Hyd/2010 : Assessment year 2005-06
3. The solitary issue involved in this appeal relates to the deduction claimed by the assessee under S.80IB of the Act.
4. Briefly the facts of the case are that the assessee company is engaged in the manufacturing and printing of lottery tickets and security instruments. For the assessment year under dispute, the assessee filed its return of income declaring total income of Rs. 10,47,740, after claiming deduction of an amount of Rs. 3,81,035 under S.80IB of the Act. In the course of the assessment proceedings, the assessing officer on examining the assessee’s return found that during the year, the assessee’s investment in plant and machinery has exceeded Rs. 1 crore. Therefore, the assessee cannot be considered as a small scale industrial unit, as per the Gazette Notification issued by the Central Government, vide S.O. No.857(E) dated 10.12.1999. Since S.80IB(ii) provides for exemption to small scale industrial unit, and as the assessee no longer remained a small scale industrial unit, in view of investment in fixed assets like plant and machinery having exceeded Rs. 1 crore. The assessing officer asked the assessee to explain why the claim of deduction under S.80IB shall not be disallowed. The assessee replied that since it is not manufacturing any goods mentioned in Schedule 11, it will be entitled to avail deduction under S.80IB, even assuming that it is not a small scale industrial undertaking. The assessing officer did not accept the assessee’s explanation by observing that deduction under S.80IB(3)(i) is available to all industrial undertakings, whether it is small scale industrial undertaking or not, if the company has started its operations on or after 1.4.1999 but on or before 31.3.1995. Whereas the companies commencing business operations after 1.4.1995 are entitled to claim deduction under S.80IB(3)(ii) only which is applicable to small scale industrial undertaking. The assessing officer disallowed the claim for deduction by holding that unit 2 of the assessee company having started its operation after 1.4.1995 and not being a small scale industrial undertaking as on 31.3.2005 in view of the gazette notification of the Central Government, being SO 857(E) dated 10.12.1999, the assessee is not entitled to deduction under S.80IB.
5. The assessee challenged the disallowance by filing an appeal before the CIT(A). In course of hearing before the CIT(A), the authorised representative for the assessee submitted hat the assessee on 4.12.1999 was registered as a small scale industrial unit. Though as per the order of the Ministry of Industry, dated 10.12.1997, a unit was treated as an SSI unit, whose fixed assets and plant and machinery did not exceed Rs. 3 crores, subsequently, it was modified by the Ministry of Commerce and Industry on 24.12.1999, reducing the limit of investment in fixed assets to Rs. 1 crore, in case of a small scale industrial unit. However, in a press note dated 23.3.2000, the Central Government clarified that any SSI unit registered in accordance with the order dated 10.12.1997, shall continue to be regarded as an SSI unit, in spite of reduction of investment limit to Rs. 1 crore. It was further contended that the assessee having been registered as SSI unit on 25.3.1997, based on the Central Government notification dated 10.12.1997, it will continue to remain as an SSI unit and will be eligible for deduction under S.80IB of the Act. The CIT(A) after considering the submissions of the assessee and taking note of the notifications of the Central Government, with regard to investment limit of the SSI unit and subsequent clarifications issued in press note, directed the assessing officer to verify the original documents regarding registration and if it is found that the assessee was registered as an SSI unit before 24.12.1999, then the assessee will be entitled for deduction under S.80IB of the Act. The finding of the CIT(A) is extracted hereunder for the sake of convenience-
“6. I have gone through the facts of the case. It is clear that the claim of deduction u/s. 80IB has been denied to the appellant society on the basis of notification SO 857(E) dt.10.12.1999, though the correct date of said notification was 10.12.1997. The Assessing officer did not consider the subsequent notification dt.24.12.999 and further clarifications issued in this regard, which have been discussed above. However, it is contended by the appellant that it had received the requisite registration on 04.,02.1999 itself, which is well before the date of 24.12.1999 mentioned in the clarification dt.19.10.2000. Under the circumstances, the Assessing Officer is directed to verify the original documents regarding registration. In case the registration is found as obtained before 24.12.1999, the appellant would be entitled to deduction u/s.80IB.”
Aggrieved by the above order of the CIT(A), Revenue has preferred this appeal before this Tribunal.
6. The learned Departmental Representative submitted before us that the Central Government having reduced the limit for fixed assets, plant and machinery to Rs. 1crore, the assessee cannot be regarded as a small scale industrial unit, since its investments in fixed assets, plant and machinery exceeded Rs. 1 crore. The Learned Departmental Representative therefore, justified the action of the assessing officer in rejecting the assessee’s claim of deduction under S.80IB of the Act. The Learned Departmental Representative in support of her contentions, produced a clarification dated 19.10.2000 issued by the Additional Development Commissioner(SSI).
7. The learned Authorised Representative submitted that as per the definition of small scale industrial undertaking under S.80IB (14)(g), an industrial undertaking which is regarded as a small scale industrial undertaking on the last day of the previous year under S.11B of the Industries (Development and Regulation) Act, 1951. The learned Authorised Representative submitted that the assessee was provisionally registered as an SSI unit on 4.2.1999. Referring to the permanent registration certificate dated 25.3.1999 issued by the District Industries Centre, Ranga Reddy District, which is at page 43 of the paper-book, the learned Authorised Representative submitted that the assessee has been registered as a small scale industrial unit till its existence. The learned Authorised Representative referring to the press note dated 14.3.2000 issued by the Ministry of Commerce and Industry, Government of India, and circular dated 14.3.2000 issued by the Additional Development Commissioner, which are at pages 51 and 52, submitted that the assessee having obtained permanent registration as an SSI unit, by virtue of the order dated 10.12.1997, it will continue to remain as an SSI unit, despite reduction of investment limit from Rs. 3 crore to Rs. 1 crore.
8. We heard rival submission and perused the materials on record. S.80IB(3)(ii) provides for deduction to small scale industrial units engaged in manufacture or producing articles or things. S.80IB(14)(b) defines a small scale industrial undertaking, which is regarded as such under S.11B of the Industries(Development and Regulation) Act, 1951. As is evident from the assessment order, the assessing officer has disallowed the claim of deduction under S.80IB by relying on the Gazette notification dated 10.12.1999 issued by the Central Government reducing the investment limit from Rs. 3 crore to Rs. 1 crore in case of small scale industrial undertaking. In the aforesaid context, it has to be determined whether the assessee can be regarded as a small scale industrial undertaking as per S.80IB(14)(g). The Ministry of Industry, Government of India, in exercise of power conferred under S.11B of the Industries (Development and Regulation) Act, 1951 issued a notification on 10.12.1997 notifying that an industrial undertaking, where investment in fixed assets and plant and machinery does not exceed Rs. 3 crores shall be regarded as small scale industrial undertaking. The Ministry of Commerce, Government of India on 24.12.1999 issued a gazette notification amending the notification dated 10.12.1997 by reducing the investment limit in the case of small scale industrial undertaking from Rs. 3 crore to Rs. 1 crore.
9. However, the Ministry of Commerce and Industry, Govt. of India issued press note dated 23.3.2000 clarifying that units which have obtained provisional registration as per the notification dated 10.12.1997 and have taken concrete steps for implementing the project such as preparation of project report, sanction of loan, purchase of land, civil construction, placement of orders for plant and machinery, etc., prior to 24.12.1999, will continue to enjoy the SSI status, so long as the investment in plant and machinery does not exceed Rs. 300 lakhs notwithstanding the revised investment limit of Rs. 100 lakh notified on 24.12.1999. Even earlier to it, i.e. on 14.3.2000, Ministry of Commerce and Industry, Government of India, in press note No.3 has clarified that units which have obtained permanent registration based on the order dated 10.12.1997 would continue to remain as SSI unit in spite of order dated 24.12.1999 reducing the investment limit to Rs. 1 crore. Further clarification was again issued in this regard by the Additional Development Commissioner(SSI) on 27.3.2000. Therefore, it has to be seen whether the assessee has satisfied the condition in terms with the clarification issued by the Ministry of Commerce and Industry, to continue to be treated as a small scale industrial undertaking. As per the permanent registration certificate issued by the General Manger, District Industries Centre, which is at page 49 of the paper-book, the assessee has been provisionally registered on 4.2.1999 and permanently registered on 25.3.1999, as a small scale industrial unit till existence of the unit. The assessee has also implemented the project and commenced production on 6.3.1999, which is much prior to 24.12.1999. There is also no allegation by the assessing officer that the assessee’s investment in plant and machinery has exceeded Rs. 3 crore.
10. Considering the aforesaid facts, it appears that the assessee satisfies all the conditions to be regarded as a small scale undertaking under S.11B of the Industries (Development and Regulation) Act,1951. The letter dated 19.10.2000 of the Additional Development Commissioner, SSI relied upon by the Learned Departmental Representative only supports the claim of the assessee. In view of the aforesaid facts and circumstances, the direction of the CIT(A) to the assessing officer to verify the original documents and allow deduction under S.80IB, if registration has been obtained prior to 24.12.1999 is most appropriate and does not call for any interference. We therefore, uphold the same, and dismiss the ground raised by the department.
11. In the result, this appeal of the Revenue is dismissed.
Revenue’s Appeal : ITA 322/Hyd/2010 : Assessment year 2006-07
12. Grounds raised by the Revenue in this appeal are identical to the ones raised in the appeal ITA No.321/Hyd/2010. For the reasons discussed in paras No.8 to 10 hereinabove, while dealing with the Revenue’s appeal ITA No.321/Hyd/2010 for the assessment year, we uphold the directions given by the CIT(A), and reject the grounds of the Revenue in this appeal.
13. In the result, this appeal of the Revenue is dismissed.
Assessee’s Appeal : ITA No.385/Hyd/2012 : Assessment year 2008-09
14. In this appeal of the assessee directed against the order of the CIT(A) IV, Hyderabad dated 30.12.2011 for the assessment year 2008-09, the solitary issue involved is with regard to disallowance of the assessee’s claim for deduction under S.80IB of the Act, which has been confirmed by the CIT(A).
15. For the assessment year 2008-09, the CIT(A) by the impugned order has confirmed the action of the assessing officer in disallowing the assessee’s claim for deduction under S.80IB of the Act, which action of the CIT(A) has prompted the assessee to file the present appeal before this Tribunal.
16. We heard both the sides and perused the impugned orders of the lower authorities. We have considered this very issue in the light of the Revenue’s appeals for the assessment years 2005-06 and 2006-07, hereinabove. For the detailed reasons discussed in paras 8 to 10 hereinabove, while dealing with Revenue’s appeal for assessment year 2005-06, we set aside the impugned order of the CIT(A)and direct the assessing officer to allow the claim of the assessee, after due verification, as directed by the CIT(A) for the assessment years 2005-06 and 2006-07 discussed above. Accordingly, grounds of the assessee in this appeal are allowed.
17. In the result, assessee’s appeal, ITA No.385/Hyd/2012 for assessment year 2008-09, is allowed.
Assessee’s Appeal : ITA No.339/Hyd/2010 : Assessment year 2008-09
18. Assessee raised the following effective ground-
2. “The learned Commissioner of Income-tax(Appeals) erred in confirming the addition of Rs. 1,82,742/- being the amount of tax retained by the authorities of Sikkim under the Income-tax Act applicable to the said province. The learned Commissioner of Income-tax(Appeals) ought to have considered the fact that the provisions of Sec.40(a)(ii) have no application to the facts of the case.”
19. Briefly, the facts of the case are that during the assessment proceedings, the assessing officer noticing that the assessee has debited an amount of Rs. 1,82,042 in the Profit & Loss Account as an amount no more recoverable, asked the assessee to explain the same. In response, the assessee explained that the amount debited is income tax deducted by State Government of Sikkim while making payment to the assessee for material supplied during the relevant previous year. The assessing officer disallowed the claim of the assessee by observing that the TDS is not an allowable expenditure.
20. The above addition of Rs. 1,82,042 made in assessment was challenged in appeal before the CIT(A). In the course of hearing of the appeal, the assessee contended that one of the conditions of the Sikkim Government on which supply orders/contracts were given to parties from outside the State is that the parties will not claim refund of the income tax deducted at source from the bills, under the Sikkim Income Tax Manual 1948. The CIT(A) holding that TDS deducted from the bills of the assessee under the Sikkim Income Tax Act being in the nature of a rate or tax on the profits and gains of the business of the assessee as envisaged under S.40(a)(ii) of the Act, sustained the disallowance made by the assessing officer.
21. The learned Authorised Representative submitted before us that the Finance, Revenue and Expenditure Department of the Government of Sikkim issued a Circular on 19.8.2004 to all Government agencies within the State instructing them that before any supply order is placed or contract agreement is signed with a party from outside the State, a condition has to be incorporated that no claim regarding refund of income deducted under the Sikkim Income Tax Manual shall be entertained. The learned Authorised Representative further submitted that even though the assessee requested for not deducting tax at source, the Director(Lotteries), Government of Sikkim had expressed that deduction of tax at source at the rate of 3% is unavoidable. In this regard, the learned Authorised Representative invited our attention to the circular of the Sikkim Government and the communications made with the Director of Sikkim State Lotteries. He submitted that the tax deducted by the Sikkim Government is not with regard to the profits and gains of business of the assessee. Therefore, no disallowance could be made under S.40(a)(ii) of the Act. The learned Authorised Representative further submitted that the Government of Sikkim has a right to collect a certain percentage of payment made to the assessee. Hence, it is not in the nature of expenditure but assessee’s receipt has been reduced to that extent.
22. The Learned Departmental Representative strongly supported the finding of the CIT(A).
23. We have heard the rival submission and perused the materials on record. The assessee has entered into a contract with finance Department, Government of Sikkim for printing and supply of lottery tickets. While making payment an amount computed at 3% has been deducted from the bills of the assessee towards income tax under the Sikkim Income Tax Manual, 1948. As per the terms of the contract, based on the circular dated 19.8.2004 issued by the Government of Sikkim, the tax deducted at source under the Sikkim Income Tax Manual, cannot be claimed as refunds. The assessee has claimed this TDS amount as an exp in the Profit & Loss Account, which has been disallowed under S.40a(ii) of the Act. At this stage, it would be profitable to look to the provisions contained in S.40a(ii), which is extracted hereunder-
“(ii) Any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of or otherwise on the basis of, any such profits or gains.”
A bare reading of the aforesaid provision, makes it clear that any rate or tax levied on the profit or gain of any business or profession shall not be allowed as deduction. The tax levied on the profits or gain of any business would mean that profit has been ascertained in a manner comparable with the outline in the provisions of the Income-tax Act. In the aforesaid context, it has to be seen whether the income-tax deducted at 3% on the bills of the assessee, partakes the character of a tax levied on the profits of the assessee. It has also to be seen whether the tax levied at the rate of 3% under the Sikkim Income Tax Manual, is after determination of profit in accordance with a machinery provision comparable with the provisions of the Indian Income Tax Act, or whether it is on the basis of a rough estimate. In this regard, the provisions of Sikkim Income Tax Manual is also required to be looked into. We find from the record that these aspects have not at all been examined by the lower authorities. We therefore, consider it appropriate to restore this issue to the file of the assessing officer, to consider this issue afresh keeping in view our observations hereinabove, and of course, after giving a reasonable opportunity of hearing to the assessee.
24. In the result, assessee’s appeal, ITA No.339/Hyd/2010 for assessment year 2005-06 is allowed for statistical purposes.
Assessee’s Appeal : ITA No.340/Hyd/2010 : Assessment year 2006-07
25. In this appeal by the assessee directed against the order of the CIT(A) dated 15.12.2009 for the assessment year 2006-07, there are two effective grounds taken by the assessee, which are against Sl.No.2 and Sl.No.3.
26. In the first effective ground, which is against Sl. No. 2. the grievance of the assessee is against the addition of Rs. 4,75,776, being the amount of tax retained by the authorities of Sikkim under the Income-tax Act applicable to the said province. This ground of the assessee is identical to the only effective ground taken by the assessee in its appeal ITA No. 339/Hyd/2010 for assessment year 2005-06. For the detailed reasons discussed in para 23 hereinabove, while dealing with the corresponding ground of the assessee for the assessment year 2005-06, we consider it appropriate to restore this issue to the file of the assessing officer, to consider this issue afresh keeping in view our observations hereinabove, and of course, after giving a reasonable opportunity of hearing to the assessee. This ground of the assessee is allowed for statistical purposes.
27. Ground No.3 relates to disallowance of expenditure claimed for an amount of Rs. 27,075. In the course of assessment proceedings, the assessing officer noticing that the exp claimed for an exp of Rs. Being in the nature of penalty, disallowed the same. Since apart from submitting that the deduction has been made by the bank from the bills, the assessee could not produce any evidence to show that what is levied is not a penalty for infraction of law, the CIT(A) also sustained the addition made by the assessing officer. Hence, assessee preferred second appeal before us on this issue.
28. We heard both sides on this issue. In the absence of any evidence produced by the assessee to claim that what is levied is not a penalty for infraction of law, the impugned disallowance is made by the assessing officer and sustained by the CIT(A). In the course of hearing before us also, the learned Authorised Representative could not produce before us any convincing argument with regard to the non-penal nature of the levy. We therefore, uphold the disallowance made by the assessing officer and sustained by the CIT(A), and accordingly reject the ground of the assessee on this issue.
29. In the result, assessee’s appeal for assessment year 2006-07 being ITA No.340/Hyd/2010 is partly allowed for statistical purposes.
30. To sum up-
(a) Both the appeals of the Revenue, being ITA Nos.321- 322/Hyd/2010 for assessment years 2005-06 and 2006-07 are dismissed;
(b) Assessee’s appeal for assessment year 2008-09, being ITA No.385/Hyd/2012, is allowed;
(c) Assessee’s appeal for assessment year 2005-06, being ITA No.339/Hyd/2010, is allowed for statistical purposes.
(d) Assessee’s appeal for assessment year 2006-07, being ITA No.340/Hyd/2010 is partly allowed for statistical purposes.
