TMI Blog2011 (3) TMI 696X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue expenditure - company has been operating for the last many years and minor replacement of parts in various machines have to be made year after year - Held that: expenditure was in the manner of replacement of a part of a machine and was allowable as revenue expenditure - Decided in favour of the assessee Disallowance u/s 36(1)(iii) - Commissioner of Income-tax (Appeals) has adjudicated the alternative ground raised by the assessee by way of Ground No. 5.3 seeking directions to the Assessing Officer for the claim of depreciation in case capitalization of expenditure is upheld - Decided in favour of the assessee by way of remand - IT APPEAL NO. 1002/PN./2009 - - - Dated:- 31-3-2011 - SHAILENDRA KUMAR YADAV, G.S. PANNU, JJ. Sunil Ganoo for the Appellant. Abhay Damle for the Respondent. ORDER G.S. Pannu, Accountant Member. This is an appeal by the assessee directed against the order of the Commissioner of Income-tax (Appeals), Kolhapur dated 20-3-2009 which, in turn, has arisen from an order of the Assessing Officer dated 22-12-2008 passed under section 143(3) of the Income-tax Act, 1961 (in short "the Act"), pertaining to the assessment year 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section, specifically section 80-IB(2)(ii), which means that the industrial undertaking must be a small scale industrial undertaking in terms of section 80-IB(14)(g) of the Act. After analyzing the requirements to be complied with by an Industrial Undertaking for being regarded as a small scale/ancillary industrial undertaking as detailed in the S.O. 857(E) dated 10-12-1999 in Appendix One to the Act, the Assessing Officer came to the conclusion that the assessee company cannot be defined as a Small Scale Industrial Undertaking within the provisions of section 80-IB(14)(g) of the Act in the impugned assessment year, especially when the value of its plant and machinery exceeded Rs. One crore. He further held that the assessee cannot claim deduction under section 80-IB of the Act for any subsequent years when the requirements for entitling such deduction have not been complied or fulfilled by the assessee, despite the fact that such deduction was allowed to the assessee in an earlier year. The Assessing Officer further held that the reliance placed by the assessee on the decision of the Hon'ble Gujarat High Court in the case of Saurashtra Cement Chemical Industries Ltd v. CIT [1980 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce the assessee has been declared eligible for deduction in the initial assessment year, such deduction can be continued for 10 years without again examining assessee's eligibility for deduction for the entire period. The Commissioner of Income-tax (Appeals) accordingly held that the Assessing Officer was justified in disallowing the deduction under section 80-IB claimed by the assessee as it did not meet the eligibility criteria specified in the section for allowance of deduction to small scale industrial undertaking. Against this decision of the Commissioner of Income-tax (Appeals), the assessee has taken up Ground Nos. 1 and 2 of the appeal before us. 4. Before us, the learned Counsel for the assessee has made detailed submissions justifying the entitlement of the assessee for the claim of deduction under section 80-IB of the Act. Factually, it is not disputed on behalf of the appellant that in terms of the meaning of "small scale industrial undertaking" stated in clause (g) of section 80-IB(14), the industrial undertaking of the assessee as on the last day of the previous year does not qualify to be regarded as a small scale industrial undertaking since the value of assets e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year and, therefore, the Assessing Officer cannot examine the question again and disturb the relief in this year, especially when the relief granted in the initial year has not been disturbed. Apart from relying on the aforesaid judicial decision, reference has also been made to the decision of the Hon'ble Delhi High Court in Natraj Stationary Products (P.) Ltd. case (supra). As per the learned Counsel the following judgments referred to by the Commissioner of Income-tax (Appeals) in his order do not support the case of the revenue : (a) CIT v. Satellite Engg. Ltd. [1978] 113 ITR 208 (Guj.). (b) CIT v. Orissa Cement Ltd. [2002] 254 ITR 24/122 Taxman 353 (Delhi). (c) CIT v. Seeyan Plywoods [1991] 190 ITR 564/56 Taxman 296 (Ker.). 5. On the other hand, the learned Departmental representative, appearing for the revenue, has submitted that the appellant is required to fulfil the conditions prescribed in section 80-IB(2) of the Act for each of the assessment year, since each year is a separate unit of assessment. The learned Departmental representative further pointed out that the provisions of sub-section (2) of section 80-IB clearly show that the deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of India : Provided that the condition in this clause shall, in relation to a small scale industrial undertaking or an industrial undertaking referred to in sub-section (4) shall apply as if the words "not being any article or thing specified in the list in the Eleventh Schedule" had been omitted. Explanation I. ** ** ** Explanation 2. ** ** ** (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. 14. For the purposes of this section,-- (g) "small-scale industrial undertaking" mans an industrial undertaking which is, as on the last day of the previous year, regarded as a small scale industrial undertaking under section 11B of the Industries (Development and Regulation) Act, 1951 (65 of 1951)." 7. Section 80-IB prescribes deduction in respect of profits and gains from certain industrial undertakings. As per sub-section (1) of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al undertaking of the assessee is engaged in the manufacture of plastic products which is one of the items in the Eleventh Schedule. Therefore, in terms of proviso to clause (iii) of section 80-IB, assessee could enjoy the benefit of deduction under section 80-IB only in case it is a small scale industrial undertaking within the meaning of section 80-IB(14)(g) of the Act. It is not disputed that in the initial assessment year, i.e., the year in which the industrial undertaking began to manufacture or produce article or thing, the said unit qualified to be a small scale industrial undertaking. The factum of the assessee being allowed the claim under section 80-IB in the initial year is not disputed. Factually, during the year under consideration the assessee does not qualify to be a "small scale industrial undertaking" within the meaning of section 11B of the IDR Act and thus it does not comply with the proviso to clause (iii) of sub-section (2) of section 80-IB of the Act. The factual matrix till now is undisputed. The difference between the revenue and the assessee starts from here. As per the revenue, since the assessee no longer remains a "small scale industrial undertaking" and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cturing articles or things stated in the Eleventh Schedule and it does not quality to be a small scale industrial undertaking in the instant year and, thus, the said condition is not fulfilled. 10. Much has been argued by the appellant to the effect that the conditions are to be verified only in the initial year and such examination is not intended by the Legislature to be carried out in the subsequent years by the Assessing Officer. For this proposition, heavy reliance has been placed on the judgment of the Hon'ble Gujarat High Court in the case of Saurashtra Cement Chemical Industries Ltd. (supra). We have perused the said decision. In the case of Saurashtra Cement Chemical Industries Ltd. (supra), the facts were as follows. The assessee was carrying on business of manufacturing cement and the capacity of the first cement plant was 600 tons per day. In the year relevant to the assessment year 1968-69, the capacity was expanded and it was raised to 1600 tons per day. The assessee company therefore made a claim for relief under section 80J of the Act with reference to the capital employed in the expansion of the plant and machinery. The Assessing Officer allowed the said clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he second year of claim of deduction under section 80J of the Act. In the initial assessment year of 1968-69 the claim was allowed by treating the expansion in capacity as formation of a new industrial undertaking. Whether expansion in capacity amounted to formation of a new industrial undertaking was a condition required to be examined only in the initial year, and which was done in the course of assessment for the assessment year 1968-69, being the initial year. In the assessment year 1969-70, the Assessing Officer sought to deny the deduction on the ground that expansion of manufacturing capacity did not amount to setting up of a new industrial undertaking. In other words, a condition which was relevant only at the time of formation of unit, was examined and accepted in the assessment year 1968-69 and the same was sought to be reviewed by the Assessing Officer in the course of the assessment for the subsequent assessment year 1969-70 and arrive at a different conclusion. This action was negated by the Hon'ble High Court with aforesaid observations that without disturbing the relief granted in the initial year, the revenue cannot examine 'the question again' to deny the relief in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs 1980-81 and 1981-82 it claimed deduction under section 80HH of the Act, which was allowed for the assessment year 1980-81 by the Assessing Officer without discussion and such assessment had become final. In the assessment year 1981-82 also the deduction was allowed by the Assessing Officer and while allowing deduction, reliance was placed on the judgment of the Hon'ble Orissa High Court in the case of CIT v. N.C. Budharaja Co. [1980] 121 ITR 212 which was the only decision then operating in the field. For the assessment year 1981-82, the assessee had preferred an appeal before the Commissioner of Income-tax (Appeals) on certain other issues. Again for assessment year 1982-83 the Assessing Officer allowed deduction under section 80HH of the Act. The Commissioner exercising jurisdiction under section 263 of the Act quashed the orders of the Assessing Officer for assessment years 1981-82 and 1982-83. As per the Tribunal, (i) since the assessment order for assessment year 1981-82 was merged in the appellate order, section 263 jurisdiction could not be exercised by the Commissioner; (ii) since the assessment was based on a binding decision of the High Court, it could not be interfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 40A(3) are not attracted in the case of payments to transporters above Rs. 20,000, the Commissioner of Income-tax (Appeals) confirmed the disallowance made by the Assessing Officer. Aggrieved, assessee has taken up Ground No. 3 before us. 16. We have heard rival submissions and have also carefully gone through the orders of the authorities below. Before the Commissioner of Income-tax (Appeals), the assessee admitted that in some cases payments in cash exceeding Rs. 20,000 had been made to transporters as they declined to accept payment by cheque. Even before us, the assessee has not been able to establish with evidence that the payments exceeding Rs. 20,000 were made under exceptional and unavoidable circumstances. In our considered opinion, the authorities below were justified in holding that provisions of section 40A(3) were attracted in the assessee's case. We accordingly confirm the disallowance of Rs 2,90,104 made under section 40A(3) of the Act. The assessee fails on this ground. 17. Ground No. 4 relates to the dispute with regard to the amount of Rs. 61,079 paid by the assessee to Sai Hydraulic Motors for purchase of Hydraulic Motor M-3-800. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax (Appeals) has erred in confirming the disallowance of Rs. 28,500 under section 40A(ia) of the Act out of transport payments made. 23. During the course of assessment proceedings, the Assessing Officer disallowed a sum of Rs. 73,500 being transport payments under section 40A(ia) of the Act on the ground that the assessee had not deducted TDS while making the above payments. In appeal before the Commissioner of Income-tax (Appeals), it was submitted by the assessee that the impugned payments were made to Dev Roadlines and that the Assessing Officer failed to appreciate that the provisions of section 194C were not applicable in respect of payment made upto Rs. 15,000 during the year under consideration. It was also contended that the disallowance should at least have been restricted to Rs. 28,500 being the last 3 payments. The Commissioner of Income-tax (Appeals) accepted the contention of the assessee and held that TDS should be deducted for the last 3 payments, where the total of such payments exceeded Rs. 50,000. Accordingly, he directed the Assessing Officer to restrict the disallowance to the last 3 payments amounting to Rs. 28,500. Still aggrieved, the assessee has taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. It was submitted before the Commissioner of Income-tax (Appeals) that the Assessing Officer erred in making the disallowance and alternatively the Assessing Officer be directed to allow depreciation on the capitalization of the interest as per the provisions of the Act. Accordingly, accepting the alternative claim of the assessee, the Commissioner of Income-tax (Appeals) directed the Assessing Officer to allow depreciation at the rates prescribed under the Act on the amount of interest capitalized under the Block of plant and machinery. Being aggrieved, assessee has taken the impugned ground of appeal before us. 27. On this ground, we find that the CIT(A) has not adjudicated on the substantive grievance of the assessee that no disallowance of interest is merited under section 36(1)(iii) of the Act, as manifested by Ground Nos. 5.1 and 5.2 of the Memo of Appeal filed before the Commissioner of Income-tax (Appeals). Instead, the Commissioner of Income-tax (Appeals) has adjudicated the alternative ground raised by the assessee by way of Ground No. 5.3 seeking directions to the Assessing Officer for the claim of depreciation in case capitalization of expenditure is upheld. In thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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