TMI Blog2016 (5) TMI 951X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of the claim of deduction u/s.80IB(10) of the Act. 3. The facts of the case are that the assessee, manufacturing automobile components, filed its return of income for the assessment years 2006-07, 2007-08 and 2008-09 after claiming deduction u/s.80IB of the Act as under: Asst. Year Income returned 2006-07 ₹ 11,15,337/- 2007-08 ₹ 62,31,868/ - 2008-09 ₹ 44,22,629/- The case was selected for scrutiny and notices u/s.143(2) and 142(1) were issued to the assessee. Scrutiny assessments u/s.143(3) of the Act was completed as under: Asst. Year Date of order Income assessed Addition I disallowance aocnc ount of 2006-07 24.12.2008 ₹ 1,47,03,293 Disallowance of deduction u/s.80IB. 2007-08 30.09.2009 ₹ 1,72,02,104 Disallowance of donation paid and deduction u/s.80IB. . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee. It is also not in dispute 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. However, the contention of the assessee is that the condition as prescribed under sub-sec.(3) is required to be seen only in the initial year or the first year of the claim and that the condition need not be satisfied every year or year after year. The AO did not accept the contention of the assessee and disallowed the claim of deduction u/s.80IB of the Act. Aggrieved, the assessee went in appeal before the CIT(Appeals), who observed that the assessee is not entitled for deduction u/s.80IB of the Act, as the assessee is ceased to be a small industrial undertaking. Against this, the assessee is in appeal before us. 4. We have heard both the parties and perused the material on record. The ld. AR relied on the judgment of the Karnataka High Court in the case of M/s. Ace Multi Axes Systems Ltd. v. DCIT in ITA No.477 of 2013 dated 28.7.2014, wherein the Karnataka High Court considering the observation of the Tribunal that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 31st day of March 2002. This is a condition which a small scale industry has to fulfill in addition to the conditions mentioned in Sub-sec.(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 to the benefit of 10 consecutive years. The argument that, in the course of 10 years, if the growth of the industry is fast and it acquires machinery and the total value of the machinery exceeds ₹ 1 crore, it ceases to have the said benefit, do not follow from any of the provisions. It is true that there is no express provision indicating either way, what would be the position if the small scale industry ceases to be a small scale industry during the said period of 10 years. Because of that ambiguity, a need for interpretation arises. If we k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the assessee is a small scale industry or not, during the last day of the previous year relevant to the assessment year and the same has not been looked into by the Karnataka High Court in the aforesaid case cited supra. 4.2 We have gone through the judgment of the Karnataka High Court cited supra and we find that there is merit in the argument of the ld. DR. More so, similar issue was considered by this Tribunal in the case of M/s Caress Beauty Care Products Pvt. Ltd. in ITA No.79/Mds/2011 dated 15.1.2013, wherein it was held as follows : 13. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case, the CIT observed that the assessee s investment in plant and machinery exceeded the limit specified u/s 11B of the Industries (Development and Regulation) Act, 1951 and therefore, the allowance of deduction to the assessee u/s 80IB vide order of assessment dated 3.12.2008 was erroneous and prejudicial to the interest of the Revenue. 14. The assessee, before us, challenged the above order of the CIT. The assessee has not disputed the fact that its investment in plant and machinery was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cale industrial undertaking and therefore, the assessee should be treated as small scale industrial undertaking under section 11B of the Industries (Development and Regulation) Act, 1951. We do not find any merit in this contention of the assessee. We find that clause (g) of subsection( 14) of section 80IB reads as under: small scale 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 (65 of 1951). 16. A plain reading of the above provisions shows that for being a small scale industrial undertaking u/s 80IB of the Act, the condition of the section is that the undertaking must be regarded as a small scale industrial undertaking u/s 11B of the Industries (Development and Regulation) Act, 1951 as on the last day of the previous year. We find that the certificate relied upon by the assessee is a certificate dated 11.9.2000 and not a certificate which has been issued on the last day of the relevant previous year or on any date subsequent thereto. 17. Further, we find that as per provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government. The first Schedule attached to the said Act specifies those industries. In order to regulate these Scheduled industries, section 10 mandates that all existing industrial undertaking have to get registered under this Act. Section 11 of the IDR Act deals with new industrial undertaking which would come into existence after the passing of the Act and establish any new industrial undertaking, except under and in accordance with a licence issued in that behalf by the Central Government. However, in case of small scale industrial undertaking, exemption and favourable benefits are provided which means those small scale industrial undertakings which fulfil the conditions of being small scale industrial are not to be regulated as per the provisions of IDR Act. It is in this context, section 11B is inserted in the statute which gives power to the Central Government to specify the requirements which shall be complied with by small scale industrial undertakings. Omitting those portions of section 11B, which are not relevant for our purposes, rest of the section is extracted below : 11B. Power of Central Government to specify the requirements which shall be complied with by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Central Government to specify the requirements which shall be complied with by the industrial undertaking to enable it to be regarded for the purpose of the said Act as small scale Industrial undertaking. Appropriate exercise in this behalf has been carried out by the Central Government by issuing notification dated 10-12-1997. Operative portion of the said notification lays down the following conditions to be fulfilled by the industrial undertakings before it could be regarded as a small scale or ancillary industrial undertakings: Now, therefore, in exercise of the powers conferred by subsection( 1) of section 11B and sub-section (1) of section 29B of the said Act,and in supersession of the notification of the Government of India in the Ministry of Industry (Department of Industrial Development) number S.O.232(E), dated the 2nd April, 1991, the Central Government hereby specifies the following factors on the basis of which an industrial undertaking shall be regarded as a small scale or as an ancillary industrial undertaking for the purposes of the said Act :- 1. Small scale industrial undertaking.-An industrialundertaking in which the investment in fixed assets in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired to be fulfilled as regards small scale industries. In the aforesaid notification, the conditions which are mentioned for being regarded as small scale industries are the ownership of plant and machinery and value thereof. Registration of such an undertaking under the IDR Act is not a condition for treating the same as small scale industrial undertaking. That registration is prescribed for altogether different purpose, viz., to avail the benefit under the IDR Act either of section 11B or section 29B. Thus, insofar as extending the provision of section 80-IB of the Income-tax Act is concerned, the only aspect which is relevant and is to be considered is as to whether the conditions stipulated in the notification issued under section 11B of the IDR Act for regarding the same as small scale industrial Act are fulfilled or not. It would be of interest to note that section 80- IB(14)(g) used the expression regarded as small scale industrial undertaking under section 11B of the IDR Act. Likewise, even the notification dated 10-12-1997 while laying down the conditions for claiming the benefit of small scale industrial undertaking used the same expression when it states following fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eof as in the case of the owner of such machinery or plant. 16. The question which was posed for consideration before the Gujarat High Court in the case of CIT v. J.H. Kharawala [1994] 208 ITR 691 was as to whether it was incumbent upon a small scale industrial undertaking to have registration under the IDR Act to claim the benefit of depreciation under section 32 of the Income-tax Act. Replying in the negative and holding that there was no such requirement of such registration to avail the said benefit, the Gujarat High Court held as under : Section 32 provides for depreciation. Sub-section (1) provides for depreciation in respect of building, machinery, plant or furniture owned by the assessee and used for the purposes of his business or profession. Clause (vi) of subsection (1) provided for one time depreciation of 20 per cent on the actual cost of ship, aircraft, machinery or plant. It gave an option to assessee to claim depreciation either in the year in which the machinery or plant was installed or the year in which the assessee had put it to use. But this special depreciation was confined to small scale industrial undertakings. Thus, it was a special provision made f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B for the year under consideration cannot be withdrawn. For the above submission, the assessee placed reliance on certain decision. The first being the decision of Hon'ble Bombay High Court in the case of CIT vs Paul Brothers(supra) which was followed again by the Hon'ble Bombay High Court in the case of CIT vs Western Outdoor Interactive Pvt. Ltd(supra). The Hon'ble Bombay High Court at page 6 in para 6 of its order has held as under: 6. We have considered the submissions. We find that the submissions made by Mr. Pardiwalla on the basis of the decision of this Court in the matter of Paul Brothers (supra) and Director of Information Pvt. Ltd. (supra) merits acceptance. Therefore, in this case, it is not necessary for us to decide whether SEEPZ unit was set up/formed by splitting up of the first unit. In both the above decisions, this Court has held that where a benefit of deduction is available for a particular number of years on satisfaction of certain conditions under the provisions of the Income Tax Act, then unless relief granted for the first assessment year in which the claim was made and accepted is withdrawn or set aside, the Income Tax officer cannot wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bombay High Court are not applicable for deciding the issue under consideration. 21. Thereafter, the assessee relied upon the decision of the Delhi Bench of the Tribunal in the case of Tata Communications Internet Services Ltd. vs ITO (supra) wherein the issue related to the formation of the industrial undertaking. In respect of this issue, the Tribunal held that bar provided u/s 80IA(3) is in relation to the formation of undertaking and once the formation is complete the development of undertaking cannot be put under restrain of section 80IA(3); if for assessment year 2004- 05, the assessee has been granted the claim of deduction u/s 80IA(4)(ii) the same cannot be denied for the subsequent assessment year by applying the restraints of section 80IA(3). 22. In contrast to the above, in the instant case, the formation of the industrial undertaking of the assessee is not an issue. Further, it is not the provisions of the law that for being eligible for deduction u/s 80IB of the Act, the assessee s industrial undertaking should be small scale industrial undertaking only in the year of formation and after having been formed in one year and in the subsequent year even the ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier years. It is a settled position that res judicata is not applicable in administration of tax laws. No vested right can be held to be created in favour of the assessee merely because of allowance of deduction in earlier years which was not legally entitled to. 26. In view of the above, we do not find any good reason to interfere with the order of the CIT passed u/s 263 of the Act. Therefore, we dismiss the grounds of appeal raised by the assessee. 27. In the result, the appeal filed by the assessee is dismissed. 4.3 Further, we find that in the case of Samruddhi Industries Ltd. v. JCIT in ITA No.1002/PN/2009 dated 31.3.2011, Pune Bench of the Tribunal observed as under : 9. We have carefully examined the rival contentions and find ourselves unable to acquiesce to the plea of the assessee company. No doubt, the conditions prescribed in sub-section (2) of section 80-IB are required to be examined in the initial assessment year, however, there is nothing in the phraseology of sub-section (2) to suggest that the condition in clause (iii) thereof has to be examined only in the initial assessment year. We are in agreement with the position of the appellant that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed the assessee s claim, as in his opinion, the expansion of cement manufacturing unit did not amount to setting up a new industrial undertaking, inasmuch as the activities of the expanded part of the unit as well as those of the original units were much inter-connected. Thus, he disallowed the claim on the ground that no new unit can be said to have been set up separate from the existing unit on account of mere expansion. The Appellate Commissioner, in appeal, held that in the absence of there being any specific provision in the Act that the new unit should be altogether distinct and even physically at a distance from the old unit, and that, if the relief was admissible for assessment year 1968-69, in respect of the expanded unit of the assessee company, that relief would continue to be available to the assessee for the subsequent period of four years. The Tribunal also upheld the order of the Appellate Commissioner granting relief to the assessee since in the opinion of the Tribunal unless the assessment for the assessment year 1968-69 was disturbed by withdrawal of the relief, there could be no substance or justification in the Revenue s attempt to withdraw the claim under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instant case the Assessing Officer is not attempting to review a position accepted with reference to the initial year. In fact, in the present case on account of changed condition namely the industrial undertaking of the assessee loosing the status of a small scale industrial undertaking under the IDR Act, the Assessing Officer seeks to hold that the said condition is not satisfied during the year under consideration. The said action cannot be interpreted to mean that there is an attempt by the Revenue to review an accepted position of the initial assessment year which was the case before the Hon ble Gujarat High Court in the case of Saurashtra Cement Chemical Industries Ltd. (supra). In the case of Saurashtra Cement Chemical Industries Ltd. (supra) once having accepted in the initial assessment year that the expansion in capacity amounted to setting up of a new unit, the same was sought to be reviewed in the subsequent year by holding differently. In fact, the Hon ble Gujarat High Court itself envisaged that the relief of tax holiday under section 80J can be withheld, provided the relief granted in the initial year is disturbed or changed on valid ground. In the present case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground was withdrawn, they could not be denied for the subsequent years. The Hon ble High Court affirmed the approach of the Tribunal on all the three counts. Before us, the learned Counsel for the appellant pointed out that the parity of reasoning approved by the High Court to the effect that unless deduction allowed in a preceding year on the same ground is withdrawn, similar relief for the subsequent years could not be withheld. Secondly, the learned Counsel also referred to the observations of the Hon ble High Court that in sections 80HH or section 80J there is no provision for withdrawal of special deduction for the subsequent years for breach of conditions. It was pointed out that similar is the situation with regard to the provisions of section 80-IB and therefore in the instant case the relief under section 80-IB could not be denied in this year. 13. In our considered opinion, the ratio of the aforesaid judgment also does not help the assessee in the instant case. The factual matrix in the aforesaid case was that in earlier year the benefit stood allowed to the assessee and without any changed circumstances, the said claim was sought to be denied in a subsequent year ..... X X X X Extracts X X X X X X X X Extracts X X X X
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