TMI Blog2015 (5) TMI 364X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Hon'ble Gujrat High Court in the case of CIT vs. Saurashtra Cement and Chemical Industries Ltd. reported in [1979 (2) TMI 21 - GUJARAT High Court], where the said findings have been reproduced hereinabove. In the facts and circumstances, we find that the facts in the present case are also similar to the case in the case of M/s. FIL Industries Ltd. (supra) as far as allowance of deduction u/s 80IB is concerned. Therefore, we find no infirmity in the order of the ld. CIT(A), who has rightly followed the decision of the ITAT, Amritsar in the case of M/s. FIL Industries Ltd. (supra) and has rightly allowed the claim of the assessee. - Decided in favour of assessee. - ITA No. 299(Asr)/2014 - - - Dated:- 17-3-2015 - A. D. Jain, JM And B. P. Jain, AM,JJ. For the Petitioner : Shri Tarsem Lal, DR For the Respondent : Shri R L Gupta, Adv. ORDER Per B. P. Jain,AM. This appeal of the Revenue arises from the order of the CIT(A), Jammu, dated 17.02.2014 for the assessment year 2009-10. The Revenue has raised the following grounds of appeal: 1. On the facts and circumstances whether the ld. CIT(A) was right in deleting the disallowance of wron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of various expenses, the net profit has been shown at ₹ 1,77,932/-. Similarly, in respect of Vanaspati unit, the assessee has reflected sales of ₹ 53,33,89,680/- against which gross profit of ₹ 1,95,72,674/- has been show. Further, after debit of various expenses the net profit has been disclosed at ₹ 82,46,961/-. On this profit, the assessee has claimed deduction u/s 80IB of the I.T. Act @ 25% at ₹ 20,61,790/-. The income has accordingly been returned at ₹ 63,63,100/-. 2.2 During the assessment proceedings, it was observed that the Oil unit and the 'Vanaspati unit' are registered as a single unit under the name of 'JK Oil Industries'. As per the documents on record, M/s JK Oil Industries has been registered with the Industries Department vide Registration No. 07/04/02565/PMT/SSI dated 14.05.1985. Later on, approval for additional line for manufacturing Vanaspati Ghee and refined vegetable oils was taken from the Industries Department vide no. 2534/IND/7443 dated 24.02.2003 and 2769/IND/4347 dated 19.5.2004 after installation of additional machinery. The production of Vanaspati Ghee was commenced from 10/11/2002. The assessee r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e which means that the Electricity Department is also recognizing both the units as one and not as separate entities. 2.4 The deduction u/s 80IB of the I.T. Act, is available only to new industrial undertaking and not to already existing industrial undertakings which only undertake substantial expansion. Thus, it appeared the deduction u/s 80IB of the I.T. Act, 1961 was wrongly claimed by the assessee. 2.5 Vide order sheet entry dated 30.11.2011, the Ld. Counsel for the assessee was confronted with the above facts and was requested to explain as to why deduction under section 80IB of the I.T. Act, 1961 may not be disallowed and added back to the income as wrongly claimed. 2.6 In response, the Ld. Counsel for the assessee vide his letter dated 02.12.2011 stated as under:- Please refer point raised by your good-self regarding the claim of deduction u/s 80IB of the Income tax Act,1061 in respect of Vanaspati Ghee Unit. This point has been already settled by the Hon'ble Commissioner of Income tax (J K), jammu u/s 263 of the Income tax Act, 1961 for the assessment year 2005-06 vide order dated 29.3.2010. Copy of order is enclosed here with for your kind personal refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 100% deduction u/s 80-IB of the I.T.Act,1961 for remaining two years and thereafter deductions u/s 80-IB of the I.T Act, 1961 shall be available @25% in respect of both units. This system has been followed by the assessee in the current assessment year under reference. Therefore, no interference is called for u/s 263 of the I.T. Act, 1961. The Assessing Officer is directed to ensure that assessee is following the same practice for the subsequent years also. 2.9. Thus, on perusal of the finding of the worthy CIT, it will be appreciated the facts of the case have not been correctly appreciated which is brought out as under: Finding of the worthy CIT Actual facts as per record It has been stated that the old unit has been claiming 100% deduction u/s 80IB of the I.T. Act,1961 for the last three years. On going through the Balance sheet of the assessee for the AY2005-06, it is seen that there was profit of ₹ 5,15,990/-., in the old Unit i.e., Oil Unit. No deduction u/s 80IB of the I.T. Act,1961 has been claimed on this unit. Neither has any deduction been claimed on the profits of this unit during the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vity, by an already existing industrial under taking did qualify for deduction u/s 80IB of the I.T Act, 1961. In fact the Hon'ble ITAT while deciding the appeal against the orders u/s 263 referred to above, in the cases of M/s Tramboo Cement Industries P. Ltd. for the Ay 2005-06, and M/s Kashmir Veneer Industries for the AY 2004-05 vide orders dated 31.12.2009 and 06.04.2010 has in fact upheld that by undergoing substantial expansion of the already existing industrial unit, no new industrial unit has come into existence. In the case of Shri Raju Choudhary for the Asstt. Year 2005-06, the Hon'ble ITAT has dismissed the appeal of the assessee against the order of the worthy CIT u/s 263 of the I.T. Act, 1961 as withdrawn by the assessee. Thus, the order passed by the Worthy CIT u/s 263 of the I.T Act, 1961. In the case of the assessee is not as per the correct appreciation of facts of the case and Law. 2.12. Keeping in view the above facts, the order passed u/s 263 of the I.T. Act, 1961 by the worthy CIT for the AY 2005-06 in the case of the assessee cannot help its case. Therefore, in absence of any other objection from the assessee on this issue. It is held that by adding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .63% of your total sales. In other words you have routed all your sales through the said firm. It is also noticed that you have also claimed deduction u/s 80IB of the I.T. Act,1961 @ 25% of your profits. It appears that you have sold your goods to your sister concern at inflated price thereby so as to claim more benefit under the above said provisions. Accordingly, in view of the provisions of section 80IA(10) r.w.sec.80IB(13) of the I.T. Act 1961. You are requested to explain as to why in computing profit and gains of your business for the purpose of deduction under sec. 80IB of the I.T. Act., 1961. The amount of profits may not be taken as may be reasonably deemed to have been derived there from. 3.2 The reply of the assessee was received on 23.12.2011. It was submitted as under: With reference to your above stated notice, it is respectfully submitted fro your kind consideration: M/s J.K. Oil Industries Trading Wing has been dealing as Traders for sale/purchase of edible oils, refined oils, vanaspati ghee, oil, cakes and soap etc. during the year under assessment. M/s J.K. Oil Industries Trading Wing has made purchase from M/s. J.K. Oil Industries and other concerns. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8048 139686032 79.74 4 Shiva Container 17768026 9355261 52.65 5 Shree Ganesh Containers 11358739 6261065 55.12 6 Ganesh Pet 14107567 5422520 38.44 3.4. Therefore, on observing the above table it will be seen that the sister concern are routing their respective sales through M/s J.K. Oil Industries Trading Wing. As brought out above, as a modus operandi, the sister concerns are inflating their sales and to negate the effect on market price. M/s. J.K. Oil Industries Trading Wing has no other option but to offer heavy discount. Had the discounts offered by M/s J.K. Oil Industries Trading Wing been passed on to the sister concerns in that case the profit of the sister concerns would have decreased or in other words the deduction claimed by them u/s 80IB of the I.T. Act,1961 would also have decreased hereby implying less capital formation. On the other had, the profit of M/s. J.K. Oil Indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is nothing but a colorable devise used by the assessee and M/s J.K. Oil Industries Trading Wing to avoid payment of taxes. 3.7. Law also casts and obligation upon the taxing Authority to unravel such unholy relationships and bring to tax income in the real hands. Even the Courts have also opined that colorable devices set up by the assessee ought to be broken and real facts brought out. In Jiyajeerao Cotton Mills Ltd. v. CIT EPT[1958] 34 ITR 888, the Hon'ble Supreme Court observed (p.897): Every person is entitled to so arrange his affairs as to avoid taxation but the arrangement must be real and genuine and not a sham or make-believe.... The Gujarat High Court in the case of CIT vs. Sakarlal balabhai [1968] 69 ITR 186 (Guj) , said (p.200}: Tax avoidance postulates that the assessee is in receipt of amount which is really and in truth his income liable to tax but on which he avoids payment of tax by some artifice or device. Such artifice or device may apparently show the income as accruing to another persons, at the same time making it available for use and enjoyment.....But there must be some artifice or device enabling the assessee to avoid payment of tax on what is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction u/s 80IB of the I.T. Act, 1961 has been allowed for the reasons mentioned in para-2 above, no separate addition is being made here. Penalty proceedings u/s 271(1) (c) of the I.T. Act, 1961 are also initiated for providing inaccurate particulars of its income. 3. The Ld. CIT(A) allowed the claim of the assessee and deleted the addition so made following the decision of the ITAT, Amritsar in the case of M/s. FIL Industries Ltd., Srinagar vs. Addl. CIT, Range-3, Srinagar, in ITA No.415(Asr)/2009 for the assessment year 2005-06, dated 27.06.2012. 4. The ld. Counsel for the assessee placed copy of the decision in the case of M/s. FIL Industries Ltd., (supra) and argued that the decision in the case of FIL Industries Ltd., (supra) is similar to the present facts and circumstances of the case. He made written submissions, which for the sake of convenience are reproduced hereinbelow: i. That the issue regarding deduction u/s 80IB of I.T. Act, 1961 in the case of the respondent is rightly held by the Ld. Commissioner of Income Tax (Appeals), Jammu, by relying upon the observations of the Hon'ble ITAT Amritsar Bench, Amritsar in the case of Fill Industries Ltd. Vs. ACIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the new industrial undertaking must be a new emergence of a physically separate industrial unit which may exit on its own as a viable unit and in order to do so following facts have to be established by the assessee. i) Investment of substantial fresh capital in the industrial undertaking setup. ii) Employment of requisite labour therein. iii) Manufacture or production of articles in the said undertaking. iv) Earning of profits clearly attributable to the said new undertaking, and v) A separate and distinct identity of the industrial unit setup. It was also held that unit may produce its products of the old business or it may produce some other distinct marketable products even products which may feed the old business. It was held that true test is whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business. There must be a emergence of a physical separate industrial unit which may exit on its own as a viable unit. v. That in the case of Fill Industries Ltd. the deduction u/s 80IB was allowed in the initia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act amounting to ₹ 7,01,56,903/- is deleted. Thus, ground Nos. 1 to 4, 7 7.1 of the assessee are allowed. Thus, from the observations of the Hon'ble Bench in the case of Fill Industries Ltd. the Ld. Commissioner of the income tax(appeals) Jammu is fully justified in allowing direction u/s 80IB to the respondent as the case of the respondent is identical to the case of Fill Industries Ltd. 5. The Ld. DR, on the other hand, relied upon the order of the Assessing Officer. 6. We have heard the rival contentions and perused the facts of the case. The relevant findings in the case of FIL Industries Ltd., (supra) in para 11-12 are reproduced for the sake of convenience as under: 11. We have heard the rival contentions and perused the facts of the case. The assessee is engaged in the business of manufacture and sale of Pesticides and Agro Products etc. at Lane-4, Phase-II, SIDCO Industrial Complex, Bari Brahamana, Jammu. As regards deduction under section 80-IB in respect of Unit-1 claimed by the assessee, the same was eligible for ten years ending in the assessment year 2004-05 and the same was not allowable during the impugned year as per provision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmu Kashmir, the assessee shall be eligible to derive profits from such industrial undertaking subject to that (i) it is not formed by splitting up or the reconstruction of a business already in existence, (ii) it is not formed by the transfer of a news business of machinery or plant previously used for any purpose, (iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India, and (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. 11.1. After reading statutory provisions as contained in section 80IB(1), 80IB(2) 80IB(4) of the Act, we find that provisions do not provide in any way separate registration or maintenance of separate records for claiming deduction u/s 80IB of the Act. The requirement under section 80IB(1), 80IB(2) and 80IB(4) is that profit must derive from an industrial undert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning its eligibility under section 80J of the Act. 11.3. It was also held in the case of CIT vs. Mahan Foods Ltd. 216 CTR 148 (Del) that only capacity was increased in that case and there was expansion of old business with some modifications. In this regard, it was held that as far reconstruction of the business, it is nowhere evident that the old industrial unit was split up or damaged or destroyed that was supposedly reconstructed as a new unit by the assessee. What the assessee has done is to set up an industrial undertaking with latest technology and with increased capacity and of course, with fairly good amount of fresh investment. The formation of the new undertaking is not as a consequence of the transfer of the plant and machinery of the old business. The value of the plant and machinery utilized in the new undertaking has been less than 20% of the total investment. Thus, the assessee's case does not get disqualified under these provisions. Therefore, in this view of the matter, the conclusion is inevitable that the assessee was entitled to deduction under section 80IA in respect of the profits of the new Industrial undertaking having satisfied the conditions. 11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocation, common procurement, manufacturing and common employees cannot be the basis to hold that the assessee was not an industrial undertaking viable and separate undertaking. What is important is that there must be a set up of independent and separate viable undertaking. In this regard, the assessee has placed on record that it has made separate investment in the plant machinery account and the building which is evident from the separate financial statements placed on record by the assessee alongwith return of income. The investment in the Plant machinery and building at the beginning of the year in dispute and at the close of the year in Unit-2 Unit-3 are available in PB-1 filed by the assessee. From the perusal of the same, it is evident that the assessee has made fresh investments both for building and plant machinery for setting up of the industrial undertakings. Such fact of the investment in both building and plant machinery has not been disputed by any of the authorities below or before us. There is no dispute as regards to the separate registration granted by DIC to the assessee with regard to Unit-II where date of commencement of production for Unit-II has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cting new building, machinery and plant and then unit-III was set up in the year 2003. M/s. FIL Industries Ltd., claimed deduction u/s 80IB for unit No. II III which were held to be operating independently as industrial undertaking since the concern invested fresh capital for establishment of unit No. II III. Likewise, the assessee in the present case is also having three industrial units i.e. Oil units, Vanaspati ghee and refined oil units operating from the same unit at Gangyal, Jammu under one name M/s.J.K. Oil Industries, having common statutory registrations from DIC, Jammu, Excise Department etc., as in the case of M/s. FIL Industries Ltd., (supra). In this case also, the first unit was set up in the year 1985 and second unit set up in 2002 and the third unit was set up in 2004. The assessee has claimed deduction u/s 80IB for Units No., II III and the unit of Vanaspati Ghee and Refined Oil were formed by new plant and machinery and operating independently as industrial undertaking. The assessee had made fresh capital investment for installation of these new units and also the new building as held in the case of M/s. FIL Industries Ltd., (supra). The said unit may produc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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