TMI Blog2013 (1) TMI 788X X X X Extracts X X X X X X X X Extracts X X X X ..... passed u/s 263 of the Act, for assessment year 2006-07. 2. The brief facts of the case are that assessee u/s 143(3) of the Act was made on 3.12.2008. In the assessment made, the Assessing Officer allowed deduction u/s 80IB of ₹ 30,95,623/- claimed by the assessee as a Small Scale Industrial Undertaking. Later on, the CIT observed that the gross value of plant and machinery as on 31.3.2006 of the undertaking was revenue 3,43,57,426/- which exceeded the limit of ₹ 1 crore stipulated for small scale industrial undertaking as per section 80IB(14)(g) of the Act. Accordingly, the CIT issued notice u/s 263 of the Act and after considering the submissions of the assessee, set aside the order of the Assessing Officer and directed him to pass a fresh order in accordance with his discussions and in accordance with law. While doing so, the CIT has held as under: I have carefully considered the reply given by the assessee. Although detailed submissions have been furnished, I find that the assessee's objections are mainly two fold. a. The order of the assessing officer cannot be considered as erroneous and prejudicial to the interests of revenue, as the issue involv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , considering the facts of this case. In the circumstances, I am of the view that the order passed by the Assessing Officer allowing deduction u/s.80IB as claimed by the assessee, is clearly erroneous and prejudicial to the interests of revenue. Accordingly the assessment order dated 3.12.2008 passed is hereby set aside .The Assessing Officer is directed to pass a fresh order keeping in mind the above points and in accordance with law. Needless to emphasize that the assessee shall be given sufficient opportunity before completing the fresh assessment. 3. The A.R submitted that so long as the assessee was registered as a small scale industrial unit, it was eligible for deduction u/s 80IB of the Act. He submitted that at page 2 3 of the paper book is placed a copy of the provisional certificate dated 30.6.1999 as a small scale industrial unit and at pages 4 5 of the paper book is placed a copy of the permanent registration certificate as a small scale industrial unit dated 11.9.2000. He relied on the decision of the Hon'ble Bombay High Court in the case of CIT vs Paul Brothers, [1995] 216 ITR 548(Nag.) and submitted that in para 6 of the said order, the Hon'ble High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up of the first unit. 5. He then relied on the decision of the Delhi Bench of the Tribunal in the case of Tata Communications Internet Services Ltd vs ITO, (2010) 4 ITR (Trib) 243 and submitted that the Tribunal at para 5.1 of its order has held as under: A perusal of the provisions of section 80-IA(3) clearly shows that the term clause (ii) was inserted by the Finance (No. 2) Act of 2004 with effect from April 1, 2005, this insertion is not with retrospective effect, as it is not so specified in the Act. The circular issued by the Central Board of Direct Taxes explaining the provisions relating to the Finance (No. 2) Act of 2004 also shows that the insertion is to take effect from April 1, 2005 and is to apply in relation to the assessment year 2005-06 and subsequent years. The first year of claim of the assessee for deduction under section 80-IA undisputedly is the assessment year 2004-05. The business of fax mail has been started by the assessee in 1997 and the business of providing internet services during the year 2000 being October 17, 2000 relevant to the assessment year 2001-02. Therefore, what is to be seen is whether there has been any violation of the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 80-IA by applying the restraints of section 80-IA(3) cannot be considered for every year of the claim of deduction under section 80-IA but can be considered only in the year of formation of the business. 6. He further relied on the decision of the Hon'ble Punjab Haryana High Court in the case of CIT vs Sohana Woollen Mills [2008] 296 ITR 238 (P H) and submitted that it was held by the Hon'ble P H High Court that mere audit objection, and merely because a different view can be taken are not enough to hold that the order of the Assessing Officer is erroneous or prejudicial to the interest of the Revenue. 7. He further submitted that deduction u/s 80IB was allowed to the assessee in assessment year 2004-05 when the gross value of plant and machinery as per books of the assessee was ₹ 3,28,35,650/-. He submitted that in assessment year 2005-06 also deduction u/s 80IB was allowed to the assessee when the value of plant and machinery as per books of the assessee was ₹ 4,25,98,618/- in an assessment made u/s 143(3) of the Act. He submitted that the assessments of 2004-05 and 2005-06 have not been disturbed by the Assessing Officer till date. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00] 243 ITR 83(S.C) wherein it was held as under: In the instant case, the Commissioner noted that the Income-tax Officer passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the Income-tax Officer failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellantcompany was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the Income-tax Officer was erroneous is irresistible. We are, therefore, of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the Commis sioner under section 263(1) was justified. 9. He further relied on the decision of the Hon'ble Gauhati High Court in the case of CIT v. B and A Plantation and Industries Ltd. [2012] 346 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire assessment. 11. Finally, the DR submitted that there was no grievance to the assessee against the order of the CIT. The CIT has only remanded the matter back to the Assessing Officer for readjudication afresh. He referred to the language of section 80IB(14)(g) and submitted that each assessment year the Assessing Officer has to determine whether on the last day of the previous year the assessee was eligible as a small scale industrial undertaking on the basis of the investment in plant and machinery. He further submitted that the decision of the Delhi Bench of the Tribunal in the case of Tata Communications Internet Services Ltd. vs ITO (supra) relied on by the assessee was of no help to the assessee in deciding the issue as in that case, what was considered by the Tribunal was section 80IA(3) of the Act and any of the conditions prescribed uns80IA(3) of the Act does not include a condition as in section 80IB(14)(g) of the Act and whether on the last day of the previous year the assessee was eligible as a small scale industrial undertaking on the basis of its investment in plant and machinery. 12. He submitted that the Hon'ble Madras High Court in the case of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,13,88,280.46 80IB claim allowed in processing of return u/s 143(1) and in reassessment u/s 147. 2004-05 3,28,35,650.05 1,40,71,742.43 1,87,63,907.62 80IB claim allowed u/s 143(1) 2005-06 4,25,98,617.91 2,08,31,032.19 2,17,67,585.72 80IB claim allowed u/s 143(3) 2006-07 6,44,57,445.74 3,09,41,157.19 3,35,16,288.55 Originally allowed u/s 143(3). Order 143(3) r.w.s 263 has been passed denying the 80IB claim. The appellant has appealed against 263 order 15. It is also not in dispute before us that if assessee s industrial undertaking is held as a non-small scale industrial undertaking under Industries (Development and Regulation) Act, 1951, then the assessee is not eligible for deduction u/s 80IB of the Act. The contention of the assessee is that as it is holding a certificate of registration issued by a Government Department, wherein the assessee s industrial undertaking was accepted as a small scale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial undertaking means 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. 9. As pointed out above, as per sub-section (3) of section 80-IB of the Income-tax Act where industrial undertaking is small industrial undertaking, it is entitled to deduction of 25 per cent of the profits and gains derived from such industrial undertaking for a period of 10 consecutive years. Small scale industrial undertaking for this purpose is defined in clause (g) sub-section (14) of section 80-IB of the Income-tax Act reproduced above. As per this provision, small scale industrial undertaking is regarded as small-scale industrial undertaking under section 11B of the IDR Act . The IDR Act is enacted to provide for development and regulation of certain industries. For the purpose of regulating those industries in the meaning prescribed under the Act, industrial undertaking is defined in section 3(d) to mean any undertaking pertaining to a scheduled industry carried on in one or more factories by any person or authority including Government. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- (i )the manufacture of parts, components, sub-assemblies, tooling or intermediates; or (ii )rendering of services, or supplying or rendering, not more than fifty per cent of its production or its total services, as the case may be, to other units for production of other articles. 2.The factors referred to in sub-section (1) are the following, namely :- (a )the investment by the industrial undertaking in :- ( i)plant and machinery, or ( ii)land, buildings, plant and machinery; (b )the nature of ownership of the industrial undertaking; (c )the smallness of the number of workers employed in the industrial undertaking; (d )the nature, cost and quality of the product of the industrial undertaking; (e )foreign exchange, if any, required for the import of any plant or machinery by the industrial undertaking; and (f )such other relevant factors as may be prescribed. 10. Section 29B of the IDR Act gives power to the Central Government to exempt, inter alia, such small scale industrial undertakings from the provisions of IDR Act. 11. As is clear from the reading of section 11B of the IDR Act, it is for the Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f publication of this notification. Two things follow from the reading of the aforesaid notification : (a)To be regarded as a small scale industrial undertaking - such an undertaking should be given which has invested in fixed assets in plant and machinery either on ownership terms of on lease or on hire purchase. (b)Worth of said asset does not exceed ₹ 3 crores. The prescription of ₹ 3 crores was reduced to ₹ 1 crore vide amendment Notification, dated 4-12-1995. 13. It is not in dispute that the appellant-assessee fulfils these requirements. However, as mentioned above, benefit is denied only on the ground that it is not registered under the provisions of IDR Act. We are of the considered opinion that the registration under the IDR Act will be of no consequence for availing the benefit under section 80-IB of the Income-tax Act. Clause (g) of sub-section (14) of section 80-IB of the Income-tax Act only mandates that such an industrial undertaking should be regarded as small scale industrial undertaking under section 11B of the IDR Act. As per section 11B of the IDR Act, it is for the Central Government to lay down the conditions which are requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al undertaking. Since the Central Government has to prescribe such conditions by notification in view of provisions of section 11B of the IDR Act, the Legislature in its wisdom deemed it fit to incorporate those conditions for the purpose of Income-tax Act as well. This issue came up for consideration before the Gujarat High Court, albeit, in the context of depreciation which is to be allowed to an assessee under section 32 of the Income-tax Act. We may point out that Explanation (3) of section 32(1) of the Income-tax Act also gives special benefit to the small scale industrial undertaking and reads as under : (3)an industrial undertaking shall be deemed to be a small-scale industrial undertaking, if the aggregate value of the machinery and plant installed, as on the last day of the previous year, for the purpose of the business of the undertaking does not exceed seven hundred and fifty thousand rupees; and for this purpose the value of any machinery or plant shall be, - (a)in the case of any machinery or plant owned by the assessee, the actual post thereof to the assessee; and (b)in the case of any machinery or plant hired by the assessee, the actual cost thereo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Explanation to section 32(1)(vi) and not to any other provision of law whereby an industrial undertaking was to be regarded as a small-scale industrial undertaking for other purposes. The Tribunal was, therefore, in error in proceeding on the basis that since the assessee was registered as a small-scale industrial undertaking with the Small-Scale Industries Department, the benefit of section 32(1)(vi) was available to it irrespective of different provision made by that Explanation in that behalf. 17. The upshot of the aforesaid discussion is to answer this question of law in favour of the assessee, as otherwise, there is no dispute that the assessee fulfils eligibility conditions prescribed under section 80-IB of the Income-tax Act and is to be regarded as small scale industrial undertaking. We direct the Assessing Officer to give the benefit of deduction claimed by the assessee under section 80-IB of the Income-tax Act for the assessment year in question, i.e., 2004- 05. 18. The other argument of the A.R of the assessee was that the assessee has been allowed deduction u/s 80IB in earlier years and as this deduction has not been withdrawn, the deduction allowed u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if satisfied in that year and deduction was allowed then unless that deduction was withdrawn it was not open for the Revenue to take a different view about the satisfaction of those conditions in the subsequent years. 20. Coming to the facts of the present case, we find that the conditions regarding assessee s industrial undertaking being a small scale industrial undertaking is of fact relevant to each year and the same can change on making of further investment in plant and machinery in subsequent year by the assessee or by sale of plant and machinery used in the undertaking by the assessee in the subsequent year. Therefore, merely because of allowance of deduction in an earlier year in which the assessee satisfied the conditions of being a small scale industrial undertaking, it cannot be held that the assessee must be allowed deduction in subsequent eligible years irrespective of the fact whether the assessee remains a small scale industrial undertaking in the subsequent years or not when the condition for allowability of deduction is that the assessee should be a small scale industrial undertaking. Therefore, in our considered view, the above decisions of the Hon'ble Bom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not a small scale industrial undertaking. Further, we also do not find any material on record on the basis of which it can be held that even when the assessee s investment in plant and machinery exceeds the value of the amount of ₹ 1 crore at the end of the previous year it can be regarded as small scale industrial undertaking u/s 11B of the Industries (Development and Regulation) Act, 1951. Thus, we find that the above decision relied upon by the A.R of the assessee is not applicable to the facts of the present case. 25. Lastly, the A.R of the assessee argued that the assessee s investment in plant and machinery at the last day of the previous year relevant to the assessment years 2004-05 and 2005-06 also exceeded ₹ 1 crore and even then the assessee was allowed deduction u/s 80IB of the Act and therefore, even in the year under consideration, the same view must be adopted. In our considered view, the above argument cannot be accepted. In our considered view, the assessee can be allowed deduction on the satisfaction of conditions envisaged in the law and not merely because it was erroneously allowed any deduction in the earlier years. It is a settled position tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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