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2015 (6) TMI 212 - ITAT DELHI

2015 (6) TMI 212 - ITAT DELHI - TMI - Entitlement to claim of exemption u/s 10B denied - whether Unit-2 is a separate unit and not expansion of Unit-1? - Held that:- The direct evidence in the facts of the case would be the letter/application addressed by the assessee to the Competent Authority at the time of setting up Unit II as that is the evidence which would demonstrate whether the assessee intended to start a new independent undertaking or did the assessee intend to expand the existing uni .....

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new undertaking on the basis of costs incurred for capital acquisition, investments in assets, new employees, new business, new premises etc. would be irrelevant evidences as both for expanding an existing unit or setting up a new unit specific separate bonded premises, assets, employees, separate books of account and bank accounts and business premises would be necessary. Thus reliance placed on decisions rendered in different facts and arguments would be of no relevance.

The assesse .....

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was purchasing it from outsiders was not a relevant criteria for denying the claim. What was the intention of the assessee at the time of setting up the new unit would be brought out from the application made to the Competent Authority. Introduction of fresh capital is required even for expanding an existing business to a different location. Accordingly in the absence of any discussion on the direct evidence to decide the issue the same is remitted back to the file of the AO with the direction .....

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rt in an appeal moved by the Revenue against the original order dated 24/6/2009 passed by the Co-ordinate Bench. The said order was set aside by the order and judgment dated 20th December 2010 by the Hon ble High Court in ITA No. 1142/2010 wherein the afore-said order was challenged by the Revenue. Accordingly in terms of the remand by the Hon ble High Court, we consider the claim of the assessee who assails the correctness of the order dated 8/2/2005 of CIT(A) VIV, New Delhi pertaining to 2001- .....

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record, is not maintainable. 2. For that the Balance Sheet on record of Unit-2 irrefutably evidences the fact that Unit-2 was established by the appellant company at a fixed capital outlay of ₹ 99,80,68,554/- to independently manufacture cotton yam and grey knitted fabrics and that Unit-2 is a separate and distinct integrated unit capable of being carried on separately as a physically identifiable and industrially recognizable viable undertaking. For that the fact that Unit-2 is a separate .....

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applicability thereto of clause (iv) of Explanation 2 of section 10 B of the Income Tax Act, 1961 simply does not arise and is of no relevance. 5. For that Unit-2 having been established by the appellant company in terms of letter of permission granted by the Government of India, Ministry of industry, Department of Industrial Development Secretariat for Industrial Approvals, EOU section, the same is a hundred percent export-oriented undertaking within the meaning of section 10 B of the Income Ta .....

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For that it is further prayed that the whole of the loss of Unit-2 may kindly also be allowed to be carried forward in the hands of the appellant company for set off in subsequent years. 8. For that the appellant company craves leave to take additional ground or grounds of appeal at or before the time of hearing. 2. Before proceeding to address the arguments of the parties before the Bench we deem it appropriate to first extract the following specific direction of the Hon ble High Court hereund .....

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nterpretation which is given in Section 10B of the Act. The Tribunal has, however, not decided the issue on merits and the appeal of the assessee herein has been allowed only on the ground that in previous years such a benefit was given., by following the principle of consistency. We are of the opinion that in a matter like this, since the grant of benefit depends upon the interpretation to be given to Section 10B of the Act, the Tribunal should have decided the issue on merits rather than takin .....

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under challenge, the Ld.AR sought to rely upon the findings arrived at by the Co-ordinate Bench in its order dated 24/6/2009 (copy of the said order placed at pages 22 to 28) so as to submit that the facts have been correctly brought out in the said order and considering the judicial precedent on the same, the issue it was submitted is to be decided in favour of the assessee. It was pointed out to the Ld. AR that since as per record, the said order has been set aside by the Hon ble High Court, a .....

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was not claimed as an eligible unit by the assessee. Accordingly it was his submission that since relevant discussion is missing in the assessment order, he had wanted to refer to the facts recorded by the Co-ordinate Bench. However, since the order stood set aside, it was submitted that the only finding given by the Assessing Officer is at page 3 i.e the last page of the assessment order where instead of allowing the exemption to the entire profits of unit 1 which was the eligible unit, the Ass .....

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Green Card and thereafter has upheld the conclusions arrived at in the assessment order. Referring to paper book page no. 19 which contains copy of the statement of Income which is part of the Audited Balance Sheet of Unit II. it was submitted that the assessee, had never claimed that unit 2 is an eligible unit and accordingly in the circumstances the tax authorities are not justified in reducing the eligible profit of Unit 1 by the losses of Unit II. Reliance was placed on the judgment of the j .....

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ue in assessee s favour. Accordingly it was his prayer that the same should be followed. 4. Ld. CIT DR Mr. Syed Nasir Ali, appearing for the Revenue vehemently submitted that Hon ble High Court has strongly deprecated the approach to decide the issue on consistency accordingly reliance placed thereon by the Ld. AR, it was submitted is misplaced. Apart from that heavy reliance was placed upon the assessment order and the CIT(A) s order. Attention of the Bench was invited to Paras 3.3.5 at page 7 .....

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the Act to eligible companies. For the said purpose attention was invited to Clause (iv) of Explanation 2 of Section 10B of the Income Tax Act. Based on the facts and the provisions of the Act, it was his submission that the claim of the assessee has rightly been denied. Referring to the copy of the audited balance sheet which was also relied upon by the Ld. AR at page 19, it was his submission that as per assessee s own claim in the Notes to the accounts the assessee has first made a disclosure .....

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required to show from the findings in the impugned order whether there is any direct reference to the fact that unit-II was an eligible unit or not. The Ld. CIT DR stated that apart from the narration of the assessee on the issue in its Notes to Accounts which cannot be accepted the only other direct evidence is the submission made before the CIT(A) recorded in the last page of his order where the assessee through the AR accepts that the green card covers both the units. Thus this plea of the a .....

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e assessing officer. The action was assailed in appeal contending that for Unit II the assessee had not put forth any claim of exemption u/s10B and thus since the assessee never treated it as an eligible unit the occasion to reduce the eligible profits of Unit I by the losses of Unit II did not arise. It is seen that the CIT(A) also did not agree with the claim put forth by the assessee and it is only before the Tribunal that the assessee succeeded for the first time. The Co-ordinate Bench consi .....

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per record before as per Page 4 of the impugned order on the following ground:- i) Unit 1 began to manufacture and export in the previous year relevant to A.Y: 1992-93. The exemption u/s 10(B) was claimed for this unit from A. Y 1995-96 and is available to the unit up to A.Y 2001-02 i.e the year under appeal. vii) Unit 2 was established which began to manufacture and export in the previous year relevant to A.Y 1997-98. The appellant company had opted for non application of the provisions of Sec .....

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y approval of the competent authority as per the mandate of Clause (iv) of Expln 2, Section 10B of the Income Tax Act, 1961. For ready reference we extract the specific statutory portion as it stood at the relevant time from the impugned order itself:- 3.3.5. The relevant provisions of Section 10(B) are note below: 10B. Special provisions in respect of newly established hundred per cent, export oriented undertakings. Explanation 2.- for the purposes of this section,- (i) Computer software means, .....

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change Regulation Act, 1973 (46 of 1973) and any rules made there under or any other corresponding law for the time being in force; (iii) export turnover means the consideration in respect of export by the undertaking of articles or things or computer software received in, or brought into India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or thi .....

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t; (v) relevant assessment years means any assessment year failing within a period of ten consecutive assessment years, referred to in this section. 5.4. Considering the same, the CIT(A) it is seen concluded that for claiming the exemption u/s 10(B), it is necessary to obtain approval as a 100% export oriented undertaking by the Board appointed in this behalf by the Central Govt. in exercise of the powers conferred by Section 14 of the Industries Development & Regulation Act, 1951 and the Ru .....

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irrelevant issue of Green Card on facts is found to be not tenable we find that the discussion on green card was a valid discussion and it was introduced by the assessee itself before the CIT(A) in support of its claim. It is further seen that the CIT(A) took into consideration the information given that the Dy. Development Commission vide letter dated 22/8/1997 as per record informed the assessee that the earlier green card no. 037 dated 25/8/1992 is cancelled and the new green card no. 377 dat .....

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y Ministry of Commerce was also made available to the CIT(A) as per record by the assessee and on considering the same, it was noticed that the certificate has been issued in the name of M/s Indo Count Industries Ltd. Certifying it to be 100% EOU dated 14/8/2002 valid upto 31/3/2006. The said certificate it was noted is in relation to green card No. 000971 i.e the industrial unit which started manufacturing in 1992. In this background, considering the statutory requirement, the CIT(A) required t .....

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he written submission. Thus, holding that when exemption is claimed to be available qua the undertaking in such a situation to hold that it was not available based on the claim put forth in the balance sheet is not relevant. However not concluding the issue against the assessee despite the oral submissions, it is seen that the assessee was directed to file copy of application made to the Board as mentioned in Explanation 2(iv) for unit 2 to verify whether the assessee sought to expand the existi .....

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ssed to the Competent Authority by the assessee for its approvals is not available on record, we find that the issue has to be sent back to the AO. While doing so, we hold that the Ld. CIT DR is justified in relying upon the finding of the CIT(A) as the claim cannot be decided on the basis of the self-serving Note to Accounts No. (ii) in paper Book page 19 given by the assessee in the Audited Book of Account. The same is reproduced hereunder:- (i) The company being an 100% Export Oriented Unit c .....

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The principle of consistency on the issue relied upon by the Ld. AR and accepted by the Co-ordinate Bench has not been approved of by the Hon ble High Court accordingly in the absence of any direct evidence on record the issue needs to be restored. As observed, the direct evidence in the facts of the case would be the letter/application addressed by the assessee to the Competent Authority at the time of setting up Unit II as that is the evidence which would demonstrate whether the assessee inten .....

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e treated to be a direct evidence of any credible relevance. The justification for setting up a new undertaking on the basis of costs incurred for capital acquisition, investments in assets, new employees, new business, new premises etc. would be irrelevant evidences as both for expanding an existing unit or setting up a new unit specific separate bonded premises, assets, employees, separate books of account and bank accounts and business premises would be necessary. Thus reliance placed on deci .....

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ement brings out the material facts before the Hon ble Court, these have been bold texted by us for emphasis:- The appellant, a heavy engineering concern manufacturing boilers, machinery parts, wagons, etc., set up two new units, a steel foundry division and jute mill division. The steel foundry division started manufacturing some castings, which the appellant was previously buying from the market, but the castings were mostly used by the other existing divisions of the appellant itself. Raw mat .....

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ld that the two units were formed by reconstruction of the business already existing within the meaning of section 15C(i); but the Appellate Tribunal, on appeal, held that the appellant was entitled to the relief u/s 15C because the two divisions were new industrial undertakings and that they were not formed by reconstruction of the existing business. The Tribunal found that the machinery in the two divisions were new, they were housed in a separate building and that industrial licenses had to b .....

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ld that the change of producing one s own goods systematically used in the existing business instead of buying them from outside would only be a reconstruction of an existing business within the meaning of section 15C (2)(i). On appeal to the Supreme Court: Held, reversing the decision of the High Court , that the steel foundry division and the jute mill division were not formed by the reconstruction of the business already in existence within the meaning of Section 15C (2)(i) and that, therefor .....

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umed by the assessee in his old business or may be sold in the open market. One thing is certain that the new undertaking must be an integrated unit by itself wherein articles are produced and at least a minimum of ten person with the aid of power and a minimum of twenty persons without the aid of power have been employed. Such a new industrially recognizable unit of an assessee cannot be said to be reconstruction of his ld business since there is no transfer of any assets of the old business to .....

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