TMI Blog2009 (2) TMI 252X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the assessee as an industrial undertaking vide certificate dt. 30th March, 1998 which is conclusive under the provisions of IRDA. No dispute that the assessee has commenced the trial production on 1st Jan.,1997 but at the same time, the AO has ignored that the assessee has started the systematic activity of refining and from 28th Feb.,1998 falling in the AY 1998-99. Therefore, the registration certificate dt. 30th March, 1998 being the assessee an industrial undertaking as small scale industry was conclusive and was available as at 31st March, 1998 being the last day of the previous year relating to AY. 1999-2000. It is necessary to mention that the total amount of investment in plant and machinery should not exceed Rs. 60 lacs for an industrial undertaking to be a small scale industry vide notification dt. 2nd April, 1991 which limit was increased to Rs. 3 crores vide further notification dt. 9th Dec.,1997 during the previous year relating to impugned year. The said investment was below Rs. 3 crores as per audited balance sheet. Therefore, the assessee fulfilled the conditions being a small scale industry in the impugned year. CIT(A) has rightly observed that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned CIT(A) has erred in allowing deduction under s. 80-IA of the Act to the assessee ignoring the fact that directions issued by the Jt. CIT to the AO under s. 144A of the Act which were in order in view of the facts and circumstances of the case. 3. We have perused the facts of the case. The brief facts of the case are that the assessee is a public limited company incorporated on 29th Nov., 1995. The main object of the assessee company is extraction of seeds for obtaining edible oils and refining thereof. The assessee company was provided certificate for commencement of business on 12th Dec., 1995 by the RoC, Jaipur. A new industrial undertaking for the extraction and refining of edible oil was set up at village Kalmanda, Jhalawar Road, Baran. It was claimed that the assessee company temporarily commenced extracting crude oil on and from 1st Jan., 1997 on a trial run, however the systematic activity of refining could be commenced only on and from 28th Feb., 1998 falling in the previous year relating to asst. yr. 1998-1999. It was claimed that the project was finally completed on dt. 22nd Feb., 1998. After the final completion of the project, the assessee company applied d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the asst. yr. 1997-98 and not 1999-2000. (2) The investment in the industrial undertaking exceeds Rs. 60 lacs which is in violation of one of the conditions for claiming the status of industrial undertaking as "small scale industrial undertaking". (3) The assessee company does not fulfil the conditions laid down under s. 80-IA of the IT Act, 1961 in the initial assessment year and therefore, is not entitled to claim the deduction in the subsequent years. Therefore, the claim of the assessee under s. 80-IA in the revised return of income for the asst. yr. 1999-2000, was rejected. In the first appeal, the learned CIT(A) after referring to various decisions however, allowed the claim so made against which the Department is in appeal. 4. The learned Departmental Representative relied upon the order of the AO whereas the learned counsel for the assessee Shri Mahendra Gargieya, advocate argued that although the assessee company was incorporated on 29th Nov., 1995 and the certificate for the commencement of business was given on 12th Dec., 1995 (both falling in asst. yr. 1996-97), however the assessee could completely set up an eligible industrial undertaking only upto 22nd Feb., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee did fulfil this condition. The Jt. CIT, however stressed that the fulfilment of the conditions must be seen only in the very initial year i.e., asst. yr. 1997-98 in this case as the manufacturing began on 1st Jan., 1997, by referring to s. 80-IA(5), (6) and (7). However this is a pure misconception of law on his part. As per s. 80-IA(1), an assessee could claim a deduction only on their fulfilment of certain conditions enumerated under sub-s. (2) for a total period of 10 years starting from the year in which production began. An assessee therefore cannot make a claim after the lapse of a period of 10 years. A bare perusal of the conditions will make it clear that the AO has to satisfy itself as to the fulfilment thereof by an assessee every year in which such claim is made. If any of the conditions are found to be unfulfilled, the AO may deny the deduction in that very year. Thus the essential conditions which an industrial undertaking must satisfy to be eligible for a deduction, are only and only those enumerated under sub-s. (2) and none other. However, sub-s. (2) nowhere requires an industrial undertaking to fulfil all these conditions in the very initial year itse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may refuse the deduction. It has been held in the case of Aditanar Educational Institution vs. Addl. CIT (1997) 139 CTR (SC) 7 : (1997) 224 ITR 310 (SC) that the conditions laid under s. 10(22) should be examined every year even when there is no reference under s. 10(22). Further, if what the Jt. C1T held is taken as correct, the purpose of putting limits viz., Rs. 60 lakhs or Rs. 3 crores under s. 11B of IDRA shall be rendered purposeless and s. 80-IA having referred to s. 11B of IDRA also stands rendered purposeless, which can never be intention of the legislature. Even a CBDT Circular No. 1 of 2005, dt. 6th Jan., 2005 [(2005) 193 CTR (St) 85] under s. 10B also supports this contention of the assessee. Whereas the definition of small scale industry clearly requires the assessee to be a small scale industry on the last day of the previous year i.e., every relevant previous year. If the assessee fulfilled the condition in the earlier year and in a later year if one of the conditions is not fulfilled, the AO is not going to allow the deduction on the plea that in the initial year it was a small scale industry and hence it is eligible. The various decisions which support the above co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated as a conclusive evidence for this purpose by all the concerned Government Departments and FIs. Hence the order of the learned CIT(A) be upheld, in asst. yrs. 2000-01 and 2001-02 both, assessment though made under scrutiny under s. 143(3) yet deductions as claimed were allowed. The learned Authorised Representative also mentioned that s. 10BA is an incentive provision, meant for the promotion of export of handicraft/handmade items. It has been held that an incentive provision has to be construed liberally. He referred the case of Bajaj Tempo Ltd. vs. CIT (1992) 104 CTR (SC) 116 : (1992) 196 ITR 188 (SC). The present case also helps achieving the avowed object. Once the underlying purpose of an enactment is served, there is no reason why the deduction should be restricted on one pretence or other. The learned Authorised Representative also referred the case of CIT vs. Krishna Copper Steel Rolling Mills (1991) 100 CTR (SC) 114 : (1992) 193 ITR 281 (SC), which has held for a liberal and broader interpretation of an incentive provision under s. 80-I. He further referred a recent case law in CIT vs. Baby Marine Exports where, the Court strongly advocated for a liberal interpretati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the applicant applying for permanent registration may also apply for temporary registration to DIC which may be granted thereupon and modifications are made therein with a view to declaring the undertaking finally as small scale industry. There is no dispute that the assessee has commenced the trial production on 1st Jan., 1997 but at the same time, the AO has ignored that the assessee has started the systematic activity of refining and from 28th Feb., 1998 falling in the asst. yr. 1998-99. Therefore, the registration certificate dt. 30th March, 1998 being the assessee an industrial undertaking as small scale industry was conclusive and was available as at 31st March, 1998 being the last day of the previous year relating to asst. yr. 1999-2000. It is necessary to mention that the total amount of investment in plant and machinery should not exceed Rs. 60 lacs for an industrial undertaking to be a small scale industry vide notification dt. 2nd April, 1991 which limit was increased to Rs. 3 crores vide further notification dt. 9th Dec., 1997 during the previous year relating to impugned year. The said investment was below Rs. 3 crores as per audited balance sheet. Therefore, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim of the assessee. Thus ground No. 1 of the Revenue is dismissed. Ground No. 2 of the Revenue: The learned CIT(A) has erred in deleting the trading addition of Rs. 4,85,182 holding that books of account cannot be rejected without pinpointing the specific defects in the books of account ignoring the fact that the AO has mentioned in the body of the order that he detected short valuation of closing stock to the extent of Rs. 31,336 and shortage of Rs. 14,902 which may be considered as specific defects in the books of account. 6. The brief facts of the case are that the assessee continues to derive income from manufacturing of oil and oil seeds from his solvent plant with refinery at Baran. During the year under consideration on a total turnover of Rs. 39,40,36,670, the assessee has declared a GP rate of Rs. 2,92,7,623 which gives rise to GP rate of 7.43 per cent as compared to last year's GP rate of 7.52 per cent having gross profit at Rs. 1,95,73,373 on total turnover of Rs. 26,01, 15,067 of the immediately preceding year. The assessee was asked to explain the reason for the decrease in the GP rate. It was also asked the reasons as to why his profit should not be determined af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clared at 6.051 kgs. from the consumption of 19.520 kgs. seed which also give rise to rate of 30.998 per cent. This suggests that the assessee has entered the yield of mustard oil at fixed rate. It is also seen that assessee has valued the closing stock of the finished goods at their net realization value. It has been further noticed that the assessee has valued the stock of Soya refined oil 35.209 kgs. by applying the rate of Rs. 30 per kg. while in that case the net realization value was at Rs. 30.89 per kg. which is clear from the sale of the refined Soya oil on 31st March, 1999. Therefore, during the course of assessment proceedings, the assessee was asked to explain the reasons for the same. It was further noticed that the assessee has claimed shortage in S.E. Soya oil at 204 kgs. in Soya refined oil at 130 kgs. and in Fatty Acid and Gumms at 550 kgs. which was in addition to the normal process of shortage. It was further noticed that the assessee does not maintain details of consumption of chemical or fuel with respect to the production of the goods. The yield of the assessee depends upon the quality of the raw material but no quality-wise detail of raw material has been main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 920 has been paid to the persons specified in s. 40A(2)(b) of the Act. The perusal of details furnished further revealed that to these persons, the interest has been paid @ 18 per cent per annum while to other creditors, the interest has been paid at different rates upto 15 per cent. Therefore, during the course of assessment proceedings, the assessee was asked to explain the reasons as to why the interest paid to the persons specified in s. 40A(2)(b) of the Act should not be treated as excessive and unreasonable and should be allowed only at 15 per cent. In his reply, the assessee has argued that the advances taken from the persons specified in s. 40A(2)(b) of the Act are of the permanent nature while other creditors are of temporary. It was also argued that 18 per cent interest rate are on those advances which are from the beginning and therefore, the question of being excessive or unreasonable does not arise. The arguments of the assessee has been considered carefully but are not found convincing for the reason that when the rate of interest on the loans/advances prevailing in the market is less and the money is easily available in the market on lesser interest and to other cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest only in accordance with prevailing market rate inasmuch as availability of the funds as and when needed and for larger period of one or two years as against two months only, no finance was available in any case below the rate of interest of 18 per cent. The AO though alleged but did not bring any evidence. The cases cited by the AO are not applicable. The effective rate of interest charged by the bank was even more than 18 per cent. The IT Department itself charged interest @ 24 per cent per annum. Hence paying interest @ 18 per cent was not at all excessive. The Tribunal has deleted similar disallowance in the case of Ravindra Kumar Sharma, ITA No. 905/Jp/2005 vide order dt. 27th Oct., 2006 and Nirmal Kumar Gupta, ITA No. 505/Jp/2007 vide order dt. 30th Nov., 2007 and CIT vs. Banswara Fabrics Ltd. (2004) 186 CTR (Raj) 52 : (2004) 267 ITR 398 (Raj). Even in the later two years, i.e., asst. yrs. 2000-01 and 2001-02, no such disallowance was made in the assessment made under s. 148/143(3) although the assessee continued paying interest @ 18 per cent. The learned Authorised Representative of the assessee relied upon the case law in the case of Munjal Sales Corporation vs. CIT (20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business and therefore, we find no infirmity in the order of the learned CIT(A) who has rightly confirmed the action of the AO. Thus ground No. 2 of the cross-objection of the assessee is dismissed. ITA No. 1055/Jp/2007; Asst. yr. 2003-04-Revenue (Asst. yr. 2003-04) Ground No. 1 of the Revenue: The learned CIT(A) has erred in deleting the trading addition of Rs. 6,48,774 made by the AO ignoring the fact that yield in pungent oil was on lower side in comparison to immediately preceding year and assessee has also claimed abnormal shortage in seed, oil, etc. 17. The brief facts of the case are that the AO made the addition of Rs. 6,48,774 being the yield lower in comparison to the immediately preceding year and the assessee has claimed abnormal shortage in the seed and oil etc. 18. The learned CIT(A) deleted the addition for the reasons mentioned in his order. 19. We have heard the rival contentions and perused the facts of the case. The facts in the present case are identical to the facts in assessee's own case for the asst. yr. 1999-2000 since the AO has not pointed out any specific defect in the books of account and in the calculation of the yield. Therefore, the AO i ..... 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