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TMI Blog2013 (1) TMI 540X X X X Extracts X X X X X X X X Extracts X X X X ..... oning the setting aside a miscellaneous petition was moved and that petition was allowed by ITAT "D" Bench Ahmedabad in MA No.182/Ahd/2011 (ITA No.2981/Ahd/2008 - A.Y. 2003-04) vide order dated 2.3.2012 and ground No.2 was directed to be decided afresh. Since the said earlier order of the Tribunal dated 4.2.2011 has been recalled for the limited purpose to adjudicate upon ground No.2, hence this order. 2. Ground No.2 is reproduced below:- The learned CIT(A) erred on facts and in law in allowing deduction u/s.10B observing that the activities carried on by the assessee were manufacturing overlooking the fact that it was polishing the valves which is in contradiction to Apex Court's ratio laid down in CIT vs. N.C.Budhiraja (1993) 204 ITR 412 (SC). 2. The learned CIT(A) erred on facts and in law in allowing deduction u/s.10B observing that the assessee had purchased the machineries, completely disregarding the fact that the assessee had employed used machinery value of which exceeded 20% of the total value of the machinery employed by the assessee: 2.1. The A.O. in the impugned assessment order passed u/s.143(3) dated 30.3.2006 has made an obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as 100% EOU, thus covered for deduction u/s.10B of IT Act in respect of the profits of the said Unit. At this juncture, ld.CIT(A) has noted that the said claim was allowed to the assessee in the past and the year under consideration was found to be the 5th year of the claim. An another fact has also been brought to the notice of ld.CIT(A) that in the case of the assessee in the past the matter had gone upto Hon'ble Gujarat High Court and in a Special Civil Application Nos. 29650 & 29651 of 2007 vide an order dated 11.4.2008 an issue was raked-up that the assessee although a manufacturing concern and eligible for deduction u/s.10B which was allowed u/s.143(3) but vide a notice u/s.148 for A.Ys. 2000-01, 2001-02 & 2002-03, it was reopened for the denial of the said claim. The Hon'ble Court has opined that for A.Y. 2001-02, the deduction was already allowed and it was found eligible for claim u/s.10B of IT Act and since there was no new material, therefore reopening after the four years was not justifiable. The argument of the assessee was, therefore, that the activity of the assessee was approved by the Hon'ble High Court and once the claim was allowed in the past, then for subsequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the lease transaction as outright purchase. Hence, the A.O. is directed to allow the claim amounting to Rs.2,53,24,882/- u/s.10B." 4. Being aggrieved, the Revenue is before us and ld.CIT-DR Mr.D.P.Gupta appeared and vehemently supported the view taken by the AO. He has argued that the reason for denial for the year under consideration was that the transaction in respect of the said machinery had taken place in the year under consideration. The assessee has kept on changing its stand. It was initially informed that the machinery was purchased but later on during appellate proceedings the stand of the assessee was that the machinery was taken on lease. According to him, a lease agreement was placed before ld.CIT(A), however that was not before the AO, therefore in the interest of natural justice the matter deserves to be restored back to the file of the AO. At this juncture, he has placed reliance on the earlier finding of the Tribunal given vide para- 10 of the IT Act through which it was observed that the lease agreement was required to be examined whether it was equivalent to an outright sale or not and also to take into account the decision of the Tribunal to be pronounced i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs during the previous year relevant to the assessment year commencing on or after April 1, 1981. The tax holiday is at the option of the assessee for five consecutive assessment years falling within the block of eight years beginning within the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things. The term "manufacture" includes processing or assembling or recording of programmes on any disc, tape, perforated media or other information storage device. The above tax holiday was not available to a hundred per cent export-oriented undertaking. Such undertakings were eligible only for deduction out of their export profits under section 80HHC of the Income-tax With a view to providing further incentive for earning foreign exchange, a new section 10B has been inserted by the Act, so as to secure that the income of a hundred per cent, export-oriented undertaking shall be exempt from tax for a period of five consecutive assessment year falling within the block of eight assessment years. The exemption provided under the new section is similar to the one provided to industrial undertakings operating in free tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the subsequent assessment year. The first year is the year in which the inquiry about the formation of the undertaking is required to be made by the AO. Although it is possible, as in the present case, that in any of the subsequent years the assessee had acquired new plant & machinery, may be of substantial value, as also may be increase the turnover or efficiency, nonetheless the act subscribes that the undertaking must not be formed by the splitting up or the reconstruction of a business already in existence. The Act also subscribes that the profits shall not to be included in the total income in respect of the prescribed consecutive assessment years beginning with the assessment years undertaking begins to manufacture an article. Therefore, the initial year is the year to establish the eligibility of the claim. Even the Ahmedabad Benches are also consistently subscribing this view as held in the case of Gateway Technolabs Pvt.Ltd., ITAT "C" Bench Ahmedabad (in ITA No.2473 & 2519/Ahd/2006 - AY 2003-04) order dated 4.9.2009. 6.1. As far as the question of alleged purchase of the machinery in question is concerned, there are few facts which indicate that the AO has wrongly held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d down in CIT Vs N.C. Budhiraja (1993) 204 ITR 412 (SC). 2 The learned CIT(A) erred on facts and in law in allowing deduction u/s.10B observing that the assessee had purchased the machineries, completely disregarding the fact that the assessee had employed used machinery value of which exceeded 20% of the total value of the machinery employed by the assessee. 3. The learned CIT(A) erred on facts and in law in holding that interest income of Rs.1,30,66,020/- was not to be included in the total turn over for the purpose of computation of deduction u/s.80HHC of the Act. 4. The learned CIT(A) erred in deleting the addition of commission of Rs.15,08,500/- by admitting fresh evidence in contravention to rule 46A, though the assessee could to substantiate its claim before the assessing officer to prove the legitimacy of the expenditure. 8.1. Ground Nos.1 & 2 are in respect of disallowance of deduction u/s.10B of the IT Act. Regarding Sr.No.1 now the Revenue is agitating the manufacturing process as well by contending that "polishing of valves" may not tantamount to manufacturing activity. In this regard, we are governed by the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciding the Revenue's appeal the Respected Coordinate Bench in the order cited supra dated 4.2.2011 has held as under:- "15. We have heard the parties. In our considered view there is no case for interference in the order of ld. CIT(A). The reasons are that interest only constitutes income and it can never be part or equivalent to turnover. Further it is assessable under the head income from other sources and in no case it will form part of computation mechanism as provided under section 80HHC unless it is held as business income and if it is so then 90% thereof would be required to be excluded. Hon'ble Delhi High Court in CIT vs. Delhi Brass & Metal Works (2009) 313 ITR 352 (Del) has held that when there is no immediate nexus of interest on F.D. with export even they are to be treated as income from other sources. Accordingly ld. CIT(A) was justified in excluding interest from computation mechanism of section 80HHC. As a result, this ground of Revenue is rejected." 9.1. Even for A.Y. 2002-03 (ITAT "C" Bench Ahmedabad) while deciding assessee's appeal bearing ITA No.981/Ahd/2006 order dated 10.12.2009, it was held that the interest income was not to be considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue. 11. In the result, the Revenue's appeal is dismissed. [C] Assessee's CO No.44/Ahd/2009 (in ITA No.322/Ahd/2009) The following grounds have been raised by the Assessee in its cross objection:- Tyco Valves & Controls India Private Limited [hereinafter referred to as 'the respondent'] objects to the appeal preferred by the Deputy Commissioner of Income tax, Baroda - Circle 4 [hereinafter referred to as 'the appellant'] and the order dated November 27, 2008 passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as 'the Act'] by the Commissioner of Income Tax (Appeals)-III, Baroda [hereinafter referred to as (CIT (Appeals)] for the Income Tax assessment year 2004-05 on the following grounds: I. Cross-Objection to Ground no.2 of the Appeal preferred by the appellant The respondent submits that the appellant has erred in raising the ground relating to use of second hand machinery as he had not called for any details or explanation from the respondent in the course of assessment proceedings and has nowhere mentioned about the same in the assessment order. However, the CIT(Appeals) has, after consid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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