TMI Blog2021 (7) TMI 323X X X X Extracts X X X X X X X X Extracts X X X X ..... cified NIC CODE. In the present case the uncontroverted fact is that the NIC CODE of the item manufactured by the assessee is not that mentioned in S.No.5 of Schedule XIII, though it may meet the other descriptions. It cannot therefore be categorically said that the item manufactured by the assessee qualified in S. No.5 of the negative list. Moreover on account of the clear cut ambiguity in the item mentioned/described against S.No.5, relating both to organic and inorganic chemicals, the assessee is entitled to the benefit of doubt regarding the items sought to be covered under it. We do not find any error in the view taken by the AO, in the light of the above facts which were before him also, that the item manufactured by the assessee does not qualify in S. No. 5 of the negative list and the assessee therefore is entitled to claim exemption u/s 80 IC The argument of the Ld.DR that the statement of the Department of Industrial Policy Promotion is a technically backed one, we find is very impressive and pertinent and there may be no doubt about it also, but all the same it only mentions the item as falling in S. No.5, which at the cost of repetition, we state, has been clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - ITA No.206/Chd/2018 - - - Dated:- 30-6-2021 - Smt. Annapurna Gupta, Accountant Member And Shri R.L. Negi, Judicial Member For the Assessee : Shri Parikshit Aggarwal, CA For the Revenue : Shri Sandeep Dahiya, CIT DR ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER: The above appeal has been preferred by the assessee against the order of the Learned Principal Commissioner of Income Tax, Shimla [ in short the Ld. Pr. CIT] dated 04.12.2017 relating to assessment years 2014 - 15, passed in exercise of revisionary jurisdiction, u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as Act ) Earlier the appeal of the assessee was dismissed by the Tribunal vide order dated 30. 05.2019 noting that the assessee had arguable points vis a vis one of the issues raised by the Ld. Pr.CIT, but had made no arguments relating to the other issues raised and that even in set aside proceedings was unable to convince the AO on those issues. Thereafter the assessee sought to recall the order vide a miscellaneous application filed in MA. No.101 / Chd/2019, pointing out that the ITAT ought have given a finding on the issue found arguable and that on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.O. b. In profit Loss account Unit I (IU-II) you have shown income on account of rent at ₹ 60,000/- and net income was shown at ₹ 45,97,055/-. Said income was not derived from manufacturing activities and also had no direct nexus between the profits and gains from industrial undertaking. Hence you are not eligible for deduction u/s 80IC of the Income Tax Act, 1961. However, the A.O. has not verified the same and had wrongly allowed deduction u/s 80IC on this income. c. On perusal of Note 7, short term loans and advances, it is noticed that you had deposited securities with sales tax department amounting to ₹ 5,000/- and ₹ 4,58,000/- with HPSEB. On verification of form No. 26AS, it is also noticed that you had received interest income of ₹ 35,179/- from HPSEB on which IDS of ₹ 3624/- was also deducted. The interest earned on these deposits is not eligible for claiming deduction u/s 80IC. However, it appears that interest income was not disclosed by you. d. On perusal of the Profit Loss account in respect of Unit- I (IU-II), you had shown net profit of ₹ 45,97,055/- on which deduction @ 25% was claimed at ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Briefly explaining the facts of the case, the Ld. Counsel for the assessee stated that the assessee was operating three units in the State of Himachal Pradesh, Unit I (i. e. IU-I), Unit- I (i.e. IU-II) and Unit- II. That the first two units, i. e. Unit I (i.e. IU-I),Unit- I (i.e. IU-II) were established in the same premises and manufacturing the same product, i.e. medicinal and industrial oxygen and nitrogen, IU-I being set up in 2000 - 01, while IU- II being set up in 2007 - 08. Vis- - vis the third unit, i.e. Unit- II, Ld.Counsel for the assessee pointed out that the assessee was manufacturing Dissolved Acetylene Gas and had commenced manufacturing the same in the year ended 2010. He drew our attention to para 3 of the assessment order wherein the aforesaid facts find mention. 7. Ld.Counsel for the assessee contended that the issue raised in point (a) of the show cause notice related to Unit II of the assessee. He further stated that the profits of the said unit were being claimed as exempt u/s 80 IC of the Act since commencement of business and had been allowed by the Revenue after scrutiny assessment in assessment year (A.Y) 2013 - 14. Our attention was drawn to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between 01-01-2003 to 01-04-2012. -there should be no reconstruction, re-establishment or revival of old business. And no old plant and machinery should be used. As regards, the product of Dissolved acetylene produced in Unit II it is to submit that the product mentioned in negative list is: 1. An Organic Chemical 2. Items should be classifiable under chapter 29 3. Item should be classifiable under sub class 24117 of the NIC classification 1998. All the aforesaid three conditions should be cumulatively satisfied/ fulfilled, to qualify to fall under S.No. 5 of Negative Lists of notifications and to become ineligible to the benefit of exemption notifications. If any of the above condition is not satisfied, the product cannot be treated covered by the negative list and benefit of exemption cannot be denied. Basic Organic Chemical (N.E.C.) are covered under sub class 24119 of NIC Classification and not under 24117, which find mention against S. No.5ofthe negative list of notifications. Entry against sub class 24119 is also reproduced below: 24119- Manufacture of basis organic chemicals NIC. The Dissolved Acetylene manufactured by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion of the assessee is acceptable. Also the products i.e. oxygen and nitrogen (24111) and dissolve acetylene (24119) are found to be outside the NIC Classification given under schedule 13 of the IT Act. Accordingly assessee is found eligible for claiming deduction u/s 80IC of the IT Act. After discussion and due perusal of books of accounts and reply filed by the assessee, it is found that this unft fulfills the conditions for allowability of deduction u/s 80IC of the IT Act and accordingly deduction so claimed is allowed. b) The next contention of the Ld. Counsel for the assessee was that this explanation had been given to the Ld. Pr.CIT also and without pointing out any fault in this explanation, had proceeded to hold the order of the AO as erroneous. He drew our attention to the findings of the Ld. Pr.CIT in this regard at para 6 - 6.3 of his order as under: 6. There is no dispute regarding the fact that the assessee had claimed deduction u/s 80IC of the Income Tax Act, 1961, which was allowed to the assessee in respect of Unit-II where Dissolved Acetylene Gas was being produced, which falls under the negative List of Schedule XIII of the Income tax Act, 1961. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de 24119 and not 24117 as mentioned in the above notification as such this Gas does not fall in the negative list, the submissions are not acceptable for the reasons that the assessee has failed to produce any documentary evidence to substance his claim that the unit of the assessee is registered with industry department for manufacturing of Dissolved Acetylene Gas under the Code, which is not falling in negative list. Whereas, the department is in possession of the information from the Industry Department of Himachal Pradesh, which clarifies that the unit of the assessee falls in negative list. 6.3 In view of the above facts, it is clearly established that Assessing Officer, has remained passive on the information available with him on records, which required proper inquiry and verification. As such, the order passed by the A.O. i.e. DCIT, Circle, Mandi for A.Y. 2014- 15, on this issue is held to be erroneous as well as prejudicial to the interest of revenue within the meaning of section 263 of Income Tax Act 1961. The Ld.Counsel for the assessee contended that when the Ld. Pr. CIT himself could not point out any infirmity in this explanation of the assessee how coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al matter, the AO had grossly erred in taking a view to the contrary solely on the basis of some explanation preferred by the assessee who was not technically competent to rebut/controvert the technical report of the government department. He argued that the AO therefore having not considered the aforesaid reports which were available with him, while considering the claim of exemption u/s 80 IC of the Act to the impugned unit-II, his order was clearly erroneous. 10. We have heard both the parties and we have also carefully gone through all the documents referred to before us. 11. The finding of error by the Ld. Pr.CIT in the order of the AO allowing the assesses claim of exemption u/s 80IC vis- a- vis unit II of the assessee, rests entirely on the letters available with the AO, of the Directorate of Industries, Himachal Pradesh and the Department of Industrial Policy Promotion, Government of India dated 03 - 06 - 2016 and 11 - 03- 2016, stating that the product manufactured by the assessee in the said unit fell in the negative list and despite which he allowed the assesses claim. To adjudicate the issue it is relevant to bring out clearly all the necessary facts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d taking necessary action is forwarded to:- 1. The Tehsildar Recovery, Directorate of Industries Shimla-171001. 2. The General Manager, District Industries Centre Mandi is directed to initiate process of recovery of Central Capital Investment Subsidy from the unit and send the recovery certificate under the Public Money (Recovery of Dues) Act,2000 to this office immediately please Sd/- Director of Industries Himachal Pradesh Letter of the Department of Industrial Pol icy Promotion, Government of India No.8(4)/2016 SPS Government of India Department of Industrial Policy and Promotion Udyog Bhawan, New Delhi Dated 11th March, 2016 The Additional Controller of Stores, Directorate of Industries, Government of Himachal Pradesh, Udyog Bhawan, Bemloe, Shimla 171 001 (Himachal Pradesh). Subject:- New Industrial Policy and other concessions for the State of Uttaranchal and the State of Himachal Pradesh Chandigarh. Sir, I am directed to refer to your letter No.Ind.Dev.(CC Subsidy)161/2010 dated 24/02/2016 on the subject cited above. The matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drocarbon isomers (other than stereoisomers), whether or not saturated (Chapter 2 7); c) the products of headings 2936 to 2939 or the sugar ethers, sugar acetals and sugar esters, and their salts, of heading 2940, or the products of heading 2941. whether or not chemically defined; d) the products mentioned in (a) or (b) or (c) above dissolved in water; NIC CODE 24117 describes item covered as under (P.B 79) 24117 Manufacture of basic inorganic chemicals n.e.c. 13. The NIC Code allotted to the assessee is 24119, copy EM II issued to the assessee by District Industries Centre, Himachal Pradesh, allotting the said NIC code was placed before us in paper book filed on 22 - 10 - 18 and the Ld. Counsel for the assessee has stated at bar that the said code has remained unchanged even as of now. From the above facts, two very vital aspects/facts relating to the issue before us emerge: 1. That the NIC CODE of the item manufactured by the assessee, i.e. 24119, is not that mentioned in S. NO. 5 of the negative list, i. e. 24117. 2. That the first two descriptions of serial No. 5 of the nega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d rightly examined by the AO, as held by us above. The argument of the Ld.DR that the statement of the Department of Industrial Policy Promotion is a technically backed one, we find is very impressive and pertinent and there may be no doubt about it also, but all the same it only mentions the item as falling in S. No.5, which at the cost of repetition, we state, has been clearly demonstrated as being unclear of the items sought to be covered and the assessee not qualifying therein on account of its NIC CODE being not covered in it. 18. We therefore hold that there was no error in the order of the AO, taking the view that the item manufactured by the assessee did not meet the description of S.No. 5 of the negative list and accordingly allow assesses claim of exemption u/s 80 IC of the Act. The findings of the Ld. Pr.CIT therefore to the effect that the AO s order was erroneous on account of inadequate enquiry having been conducted on the issue of grant of exemption u/s 80 IC of the Act to unit- II of the assessee are accordingly set aside. 19. The remaining issues raised by the Ld. Pr.CIT, it was pointed out, related to the issue of claim of deduction u/s 80 IC of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire income earned therein had been subjected to tax and, therefore, the findings of the Ld.Pr.CIT that the assessee had been wrongly allowed deduction u/s 80 IC of the Act on rental income and interest on securities earned in the said unit by the AO is incorrect. There is clearly no error in the order of the AO since both the rental income and interest on securities has been subjected to tax and the findings of the Ld.Pr. CIT in this regard are therefore set aside. 23. The last issue, it was pointed out by the Ld. Counsel for the assessee, related to bifurcation of expenses between Unit- I (IU-II) and Unit- II of the assessee. The expenses being on account of electricity, water and employees benefit, it was pointed out that the Ld. Pr.CIT was of the view that the said expenses ought to have been apportioned in proportion of the turnover of the said two units, while the assessee had claimed a greater portion of these expenses in Unit- I (IU- II) where it was eligible for lesser deduction u/s 80 IC of the Act @ 25 % and had claimed a small portion of these expenses in Unit-II thus inflating its profit in the said unit and claiming deduction of the entire profits u/s 80 IC of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 10.1. The above explanations given by the assessee has been considered and found not tenable. The assessee has not been able to justify as to how the electric charges of Unit in which deduction us 80IC is being claimed is more than 3 times, even if the submissions that no meter charges are included in the bills, the same will not make any difference as the meter charges may not be more than Rs. l,000/- per month. Likewise, the assessee has not furnished any document from which it could not gathered that the salaries/ other benefits for the employees have been incurred and claimed in the proportionate turnover/sales or there is separate management/roll of employees for both the units. 27. We have heard both the parties. With respect to the apportionment of expenses relating to the electricity charges and salary to employees between Unit- I (IU- II) and Unit- II, we find that the assessee had explained that the two units were separate manufacturing different items, having their own infrastructure for electricity and had different employees on their rolls and expenses had accordingly been accounted for in the said two units. The Ld. Pr. CIT while f inding error in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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