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2015 (5) TMI 512 - ITAT HYDERABAD

2015 (5) TMI 512 - ITAT HYDERABAD - TMI - Deduction under section 80IB denied - value of plant and machinery of the assessee company having been exceeded to ₹ 5 crores, it was not a SSI (Small Scale Industrial) Unit eligible for claiming deduction under section 80IB - Held that:- The common issue involved in the present appeals thus is squarely covered in favour of the assessee by the decision of the Hon’ble Karnataka High Court in the case of M/s. Ace Multi Axes Systems Ltd.[2014 (8) TMI .....

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s going outside the purview of the definition of a small scale industry, that should not come in the way of its churning benefit under Sec.80lB for 10 consecutive years from the initial assessment year.

In the present case the appellant was first recognized as a permanent SSI Unit in the year 1992 and at the time of recognition the investment limit was ₹ 60 lakhs. Thereafter, it was increased to ₹ 3 crores in the year 1997 and later in the year 1999 it was reduced back to .....

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t adhering to the norms fixed by the Government from time to time and, in any case, when all the conditions stipulated for SSI Units are being followed by them and recognized as SSI Unit by the prescribed authority, they cannot be disallowed the deduction under section 80IB of the Act - decided in favour of assessee. - ITA.No.62/Hyd/2012, ITA.No.1080 & 273/Hyd/2013 - Dated:- 24-4-2015 - Shri P. M. Jagtap And Shri Saktijit Dey JJ. For the Appellant : Mr. Samuel Nagadesi For the Respondent : Mr. R .....

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mmon issue is involved in all these appeals, the same have been heard together and are being disposed of by a single composite order for the sake of convenience. The solitary common issue involved in these three appeals relates to the assessee s claim of deduction under section 80IB of the Act. 2. The relevant facts of the case giving rise to these appeals are as follows. The assessee is a company which is engaged in the business of manufacture of bulk drugs and intermediaries. The return of inc .....

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ng deduction under section 80IB. In this regard, he relied on Notification No.S.O.2(E) dated 01.01.1993 wherein the method of calculating the value of plant and machinery was prescribed as under : In calculating the value of plant and machinery for the purposes of this Notification, the original price there of irrespective of whether the plant and machinery are new of second hand shall be taken into account. In calculating the value of plant and machinery, the following shall be excluded, namely .....

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es Corporation or the State Small Industries Corporation. vi. The cost involved in procurement or installation of cables, wiring, bus bars, electrical control panels (not those mounted on individual machines), oil circuit breakers/ miniature circuit breakers etc., which are necessarily to be used for providing electrical power to the plant and machinery/ safety measures. vii. The cost of gas producer plant. viii. Transportation charges (excluding of taxes e.g. Sales Tax, Excise etc.) for indigen .....

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he port to the site of the factory, demurrage paid at the port): ii. The shipping charges; iii. Customs clearance charges; and iv. Sales tax 2.1. In the light of the above notification as well as the relevant provisions of law, the A.O. did not accept the classification made by the assessee of plant and machinery in two classes namely Core Machinery and Other Assets . He also found on verification of the relevant details that some equipment were shown by the assessee under the head R & D Equ .....

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at the items shown by the assessee company under the head Electrical Equipment were consisting of electrical motors, pump sets, gear boxes, drilling machines, vacuum pumps, split air-conditioners etc. He held that all these items thus were not liable to be reduced to compute the value of plant and machinery of the assessee company as per Notification No.S.O.2(E) dated 01.01.1993 and the classification of machinery resorted by the assessee company was to camaflouge the fact that value of plant an .....

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A.Y. 2009-2010, the assessee company filed its return of income on 28.09.2009 declaring total income of ₹ 7,05,77,433 after claiming deduction of ₹ 3,03,11,757 under section 80IB of the Act. In the assessment completed under section 143(3) vide order dated 27.12.2011, the claim of the assessee for deduction under section 80IB for A.Y. 2009- 2010 was also disallowed by the A.O. on the same grounds as adopted in A.Y. 2008-2009 after re-computing the value of plant and machinery of the .....

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dated 31.10.2012, the claim of the assessee for deduction under section 80IB for A.Y. 2007- 2008 was also disallowed by the A.O. on the same grounds as given in A.Ys. 2008-2009 and 2009-2010 after re-computing the value of plant and machinery of the assessee company at ₹ 5,15,67,330. 4. Against the orders passed by the A.O. for all the three years under consideration i.e., A.Ys. 2007-2008, 2008- 2009 and 2009-2010, appeals were preferred by the assessee before the Ld. CIT(A) disputing the .....

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his order dated 30.11.2012 and 17.04.2013 respectively whereby he allowed the claim of the assessee for deduction under section 80IB without taking note of the fact that similar issue involved in the case of the assessee for A.Y. 2008-2009 was already decided by his predecessor against the assessee. The reasons given by the Ld. CIT(A) for allowing the claim of the assessee for deduction under section 80IB for A.Ys. 2009- 2010 and 2007-2008 are extracted below : 6. The detailed written submission .....

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arrived at by the appellant. As claimed by the appellant in its written submissions, in paras 3.3 to 3.6 of the assessment order, the Assessing Officer has glossed over the very exceptions provided in the IDR Act in valuing the plant and machinery as well as the method of valuation of plant and machinery adopted by the appellant. Going by the bills and vouchers produced evidencing the additions to fixed assets and the classification of plant and machinery, I find that the clause-wise classificat .....

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of the appellant that for the limited purpose of showing that the investment made by it is below ₹ 5 crores as per IDR Act, the appellant had classified the assets into two categories, one as core machinery and the balance assets as other assets, keeping the very exceptions provided in the IDR Act. For the purpose of calculating depreciation the total plant and machinery, any way, was clubbed and shown under the single block of assets as per Income Tax Act, 1961 by the appellant. 6.2. Apar .....

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istered with DIC, Ranga Reddy as SSI Unit and this registration cannot be disregarded in toto. 6.3. While claiming that their unit is a SSI Unit and thus eligible for deduction under section 80lB of the Act, with regard to the issue of limit of investment in Plant and machinery, apart from the factual submissions, the assessee brought out some facts and background relating to this issue. From the facts submitted by the appellant, it transpires that the investment limit imposed upon the definitio .....

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s in plant and machinery Upto ₹ 15 lacs in plant and machinery 1980 ₹ 20 lacs Rs.25 lacs 1985 ₹ 35 lacs Rs.45 lacs 1991 ₹ 60 lacs Rs.75 lacs 1997 Rs.300 lacs Rs.300 lacs 1999 Rs.100 lacs Rs.100 lacs 6.4.The appellant was first recognized as a permanent SSI Unit in the year 1992 and at the time of recognition the investment limit was ₹ 60 lakhs. Thereafter, it was increased to ₹ 3 crores in the year 1997 and later in the year 1999 it was reduced back to ₹ .....

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the years, they are running their unit adhering to the norms fixed by the Government from time to time and, in any case, when all the conditions stipulated for SSI Units are being followed by them and recognized as SSI Unit by the prescribed authority, they cannot be disallowed the deduction under section 80IB of the Act. 6.6. Considering all the foregoing facts and circumstances, I am inclined to accept the submissions of the assessee, both factually and legally, and direct the Assessing Offic .....

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n A.Ys. 2009-2010 and 2007-2008 in the present appeals filed before the Tribunal. 6. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that the common issue involved in the present appeals is squarely covered in favour of the assessee and against the revenue by the decision of Hon ble Karnataka High Court in the case of M/s. Ace Multi Axes Systems Ltd., vs. DCIT, Circle 11(1), Bangalore (2014) 367 ITR 266 cited by the Ld. Counsel for t .....

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l the conditions mentioned under Sub-sec.(2) of Sec.80IB. The four conditions which. are stipulated therein are, firstly, the industrial undertaking must not have been formed by splitting up or reconstruction of a business already in existence The second condition is, such an undertaking is not formed by transfer of machinery or plant previously used for any purpose. The third condition is that the industrial undertaking manufactures or produces any article or thing not being any article or thin .....

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a manufacturing process carried on without the aid of power Once these four conditions are fulfilled, the assessee is entitled to the benefit under Sec.80IB of the Act. Subsec.( 3) of Sec.80IB provides the extent of deduction eligible under Sec.80IB and also the number of years such a deduction is available to such an undertaking. Sub-sec.(3) mandates that the industrial undertaking shall be eligible for the said deduction for a period of 10 consecutive years, beginning with the initial assessme .....

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. (2) of Sec.80IB. Once all these conditions are fulfilled, a small scale industry is entitled to the benefit of deduction for a period of 10 consecutive years beginning with the initial assessment year. 5. In the entire provision, there is no indication that these conditions had to be fulfilled by the assessee all the 10 years. When once the benefit of 10 years, commencing from the initial year, is granted, if the undertaking satisfy all these conditions initially, the undertaking is entitled t .....

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ambiguity, a need for interpretation arises. If we keep in mind the object of the Legislature providing for these incentives and when a period of 10 years is prescribed, that is the period, probably, which if; required for any industry to stabilize itself. During that period the industry not only manufactures products, it generates employment and it adds to the wealth of the country. Merely because an industry stabilizes early, makes profits, makes future investment in the said business, and it .....

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