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IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, MUMBAI
BEFORE S/SHRI B.R.BASKARAN, AM AND AMARJIT SINGH, JM
./I.T.A. No.1363 /Mum/2012
And ITA No.7754/Mum/2011
( / Assessment Years: 2004-05 and 2005-06)
The Asstt. Commissioner of / M/s Deesan Agrotech Limited,
Income Tax, Range 9(1), 4A, Vikas Centre, 104,
Vs.
Room NO.223, S V Road,
Aayakar Bhavan, Santacruz(W),
M K Road, Mumbai-400054
Mumbai-400020
( /Appellant) .. ( / Respondent)
./ ./PAN. :AAACD1662N
/ Appellant by Shri S K Mishra
/Revenue by Shri S C Tiwari
/ Date of Hearing : 14.9.2015
/Date of Pronouncement: 09.10.2015
/ O R D E R
Per B R Baskaran, AM:
Both the appeals filed by the revenue are directed against the
separate orders passed by Ld CIT(A)-19, Mumbai for assessment years
2004-05 and 2005-06. Since the issues urged in both the appeals are
identical in nature, they were heard together and are being disposed of by
this common order, for the sake of convenience.
2. In both the years, the revenue is aggrieved by the decision of Ld
CIT(A) in holding that the reopening of assessment is bad in law.
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3. We heard the parties and perused the record. The assessee is
engaged in the business of manufacture of oil and oil cakes through
Solvent Extraction Process. The assessments of both the years under
consideration was completed originally u/s 143(3) of the Act by allowing
deduction u/s 80IB of the Act claimed by the assessee. The assessing
officer subsequently noticed that the assessee had commenced
manufacturing activities on 14.6.1995 only, whereas the provisions of sec.
80IB(3)(i) mandate that the assessee should have commenced
manufacturing prior to 31.3.1995. However the above said time limit
commencing production was available upto 31.3.2002 for a Small Scale
Undertaking u/s 80IB(3)(ii) of the Act. However, the assessing officer
also noticed that the investment made by the assessee in the Plant and
machinery has exceeded Rs.1.00 crores and hence the AO took the view
that the assessee cannot be considered to be a small scale undertaking,
thus becoming ineligible to claim deduction u/s 80IB(3)(ii) of the Act also.
Accordingly, the AO entertained the belief that the income of the assessee
has escaped the assessment by reason of deduction u/s 80IB wrongly
allowed to the assessee. Accordingly he reopened the assessment of both
the years under consideration in order to disallow the deduction allowed
u/s 80IB of the Act. The assessee contended before the AO that it is
classified as "Small scale undertaking" as per Industries (Development &
Regulation) Act 1951 and also furnished a copy of registration certificate.
Accordingly it contended that it is eligible for deduction u/s 80IB(3)(ii) of
the Act. The said contention did not find favour with the assessing officer.
Accordingly the AO completed the assessment of both the years by
disallowing the claim for deduction u/s 80IB of the Act.
4. Before Ld CIT(A), the assessee challenged the validity of reopening of
assessment by contending that the assessee had been allowed deduction
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u/s 80IB of the Act in the earlier years and hence the AO has reopened the
assessment of the two years under consideration only on change of
opinion. It was further contended that the assessee continues to be
classified as "Small Scale Undertaking" under the Industries (Development
& Regulation) Act 1951, which is the requirement prescribed in sec.
80IB(14)(g) of the Act. The Ld CIT(A) noticed that all the details relating
to the deduction claimed u/s 80IB was available before the AO in the
original assessment proceedings also in both the years. The AO had not
brought any fresh material on record. Accordingly he was convinced with
the contentions of the assessee that the reopening was done on mere
change of opinion. Accordingly the Ld CIT(A) held that the reopening was
bad in law in both the years.
5. It is pertinent to note that the assessment for AY 2004-05 was
reopened on 24.03.2009 and the assessment for AY 2005-06 was
reopened on 01-10-2009, i.e., at a later date. In the reasons recorded for
reopening of AY 2005-06, the AO has referred to the audit objection given
by revenue audit party in respect of the eligibility of the assessee to claim
deduction both u/s 80IB(3)(i) and 80IB(3)(ii) of the Act. Hence, it was
contended before Ld CIT(A) that the assessing officer has reopened the
assessment on the basis of audit objection only and hence on that ground
also, the reopenening was bad in law. The Ld CIT(A) has accepted the
said contentions of the assessee in AY 2005-06.
6. In assessment year 2004-05, the Ld CIT(A) also examined the
eligibility of the assessee to claim deduction u/s 80IB of the Act, i.e., on
merits also, and held that the assessee is eligible to claim deduction u/s
80IB of the Act. It is pertinent to note that the revenue has not
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challenged the said decision of the Ld CIT(A), meaning thereby, the appeal
filed by the revenue for AY 2004-05 is only academic in nature.
7. We heard the parties and perused the record. We notice that the
Ld CIT(A) has discussed about the validity of reopening of assessment in a
detailed manner in his order. Hence, for the sake of convenience, we
extract below the relevant observations made by in AY 2004-05:-
"5. I have considered the facts of the case and the submissions
made by the appellant. The A.O. has recorded his reasons for
reopening and the sad reasons are as under:
"On verification Form 10CCB revealed that the date of
commencement of operation by the undertaking is mentioned
as 14.6.1995. Since unit commenced its operation after
31.3.95, it was not entitled to claim the deduction u/s
801B(3)(i). Further, as per Sr. No. 18(b) of Form 10CCAB, the
investment in the plant and machinery is more than Rs. 1
crore and therefore the company is not a Small Scale
Industrial Undertaking. Hence, the company does not qualify
for deduction u/s 80IB(3)(ii). Therefore, the assessee was
neither entitled for deduction u/s 80IB(3)(i) nor u/s
80IB(3)(ii). The deduction allowed u/s 801B(3) was therefore
irregular. The incorrect allowance of deduction u/s 80IB(3) of
Rs. 72,04,694/- for A.Y. 2004-05 has resulted into
escapement of income from assessment within the meaning
of provisions of section 147 of the IT Act, 1961."
5.1 From the reasons as recorded it is clear that the very basis
forming the foundation for initiating reassessment proceedings is the
Audit Report in Form 10CCB already on record. The assessment had
originally been completed under s. 143(3) i.e , after scrutiny. The
appellant had been allowed deduction under s. 80IB of the Act and
which was the subject matter of appeal, albeit on a different matter.
However, this denotes application of mind of the A.O. on the
eligibility or otherwise of the appellant for the claim of deduction
under s.80IB. Thus all the primary facts were disclosed in the return
of income as filed. Though it is seen that the notice has been issued
before the expiry of four years from the relevant assessment year,
the issue raised in this ground is whether the A.O. could be credited
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with having "reason to believe" that income had escaped
assessment. It has been laid down by the Hon'ble Supreme Court in
the case of Kelvinator of India Ltd. (320 ITR 561 Cited above) that
"reason to believe" cannot be equated with change of opinion.
Admittedly, in the instant case, between the date of order of
assessment sought to be reopened and the date of forming an
opinion that income has escaped assessment, nothing new has
happened. There has been a fresh application of mind by the A.O.
on the existing same set of facts, Thus, it amounts to only a change
of opinion. In the case of the Kelvinator of India Ltd it has been held
that the A.O. does not have the power to review the details already
on record regarding the claim of deduction under s. 80IB. All
relevant information was disclosed in the Return filed, accompanied
with the Audit Report. Under the circumstances, reassessment
proceedings have been initiated based on a change of opinion on
the same set of facts that were already available on record and
considered by the A.O. Hence it is held that the ratio of the
judgment of the Hon'ble Supreme Court in CIT Vs. Kelvinator of
India Ltd applies and hence it is held that proceedings leading to
issue of notice under s. 148 have not been validly initiated"
8. On merits, i.e., on the issue of eligibility of the assessee to claim
deduction u/s 80IB of the Act, the Ld CIT(A) held as under:-
"7. I have considered the facts of the case, the findings of the
A.O. I have carefully perused the records. The appellant had claimed
deduction under s.80IB as per return of income filed originally. The
claim under s. 80IB was supported by Audit Report, in form No.
10CCB filed along with return of income. The claim was made in the
status of a Small Scale Industrial Undertaking. Therefore, the claim of
the appellant has to be examined in terms of section 80IB(3)(ii) of
the Income Tax Act. It is provided that where an industrial
undertaking is a Small scale Industrial Undertaking, it must begin to
manufacture or produce articles or thing or to operate cold storage
plant [ not being the cold storage plant specified in sub-section 4 or
sub-section 5 ] at any time during the period beginning on 1.4.1995
and ending on 31.3.2002. Admittedly, the undertaking, commenced
operations on 14 June 1995, as is evidenced by the Audit Report in
form 10CCB. Thus, the appellant company started commercial
production within the eligibility period as prescribed in sub-section (ii)
of clause (3) of section 80IB. As mentioned earlier the claim
of the appellant has been made considering itself as a Small Scale
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Industrial Undertaking. Therefore. the claim of the appellant is to be
examined in the light of the conditions precedent for deduction under
sub-section (ii) of clause 3 of section 80IB stands fulfilled. The term
"Small Scale Industrial Undertaking' is defined in clause (g of sub-
section 14 of s. 80IB) as under:
"(g) "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)"
Section 11B Of the Industries (Development and Regulation)
Act, 1951 read as under :
"11B(1) The Central Government may, with a view to
ascertaining which ancillary and small scale industrial
undertaking need supportive measures, exemptions or other
favourable treatment under this Act to enable them to
maintain their viability and strength so as to be effective in--
(a) promoting in a harmonious manner the industrial
economy of the country and easing the problem of
unemployment, and
(b) securing that the ownership and control of the
material resources of the community are so distributed
as best to subserve the common good,
specify, having regard to the factors mentioned in sub-section
(2), by notified order, the requirements which shall be
complied with by an industrial undertaking to enable it to be
regarded, for the purposes of this Act, as an ancillary, or a
small scale, industrial undertaking and different requirements
may be so specified for different or with respect to industrial
undertakings engaged in the manufacture or production of
different articles:
Provided that no industrial undertaking shall be regarded as
an ancillary industrial undertaking unless it is, or is proposed
to be, engaged in--
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(i) the manufacture of parts, components, sub-assemblies,
toolings 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."
7.2 From a reading of s.11B of the Industries (Development and
Regulation) Act it is evident that an undertaking has to comply with
the requirements under the said enactment so as to be regarded as
an ancillary or as a small scale Industrial Undertaking. Sub-section 2
of section 11B refer to the factors with which there has to be
compliance and one of the factors mentioned is the investment by the
undertaking in plant and machinery. It is further seen that the
compliance to the said factor or factors shall be as per
notified order. Thus, the status of an undertaking that is whether
Small Scale or ancillary, shall be decided by the Competent Authority
under the said enactment i.e. the Industries (Development &
Regulation) Act with reference to the notifications issued by the
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Central Government from time to time. It is a fact that the company
has been registered as Small Scale Industrial Undertaking with the
District Industry Center, Dhule which is a prescribed authority under
s. 11 B of the Industries (Development & Regulation) Act.
7.3 During the course of hearing of appeal the appellant has
furnished copy of application furnished before the District Industry
Centre dated 9.2.2007 wherein it is indicated that it is an Small Scale
Industrial Undertaking (Pages 46 to 55 of the Paper Book filed). The
last page of the said application is Acknowledgement signed by the
General Manager. District Industry Centre, Dhule, wherein the
undertaking is acknowledged as Small Scale. In the said form, it is
stated that the date of commencement of production is 14.06.1995.
Further, as per records it is evident that the claim for deduction u/s
801A/80IB is being made from the A.Y. 1997-98 and has been given
accordingly. The records indicate the first year of the claim is 1997-
98, where a claim was made under s. 80IA and was allowed. Thus,
from the facts as are available on the records of the A.O. and also
based on the materials produced during the course of hearing of
the appeal it is seen that the appellant company has been registered
as a Small Scale Industrial Undertaking and continue to be so. The
records indicate that the registration granted to an appellant
company, as a Small Scale Industrial Undertaking has not been
cancelled or withdrawn. Hence, it has to be held that once a
registration has been granted to an undertaking as an Small Scale
Industrial Undertaking, which is at the time of formation of the
business of the company, it would continued to be so,
notwithstanding the subsequent notifications issued. As
stated earlier the claim for deduction as Small Scale Industrial
Undertaking stood admitted in the year 1997-98, subsequently, in the
subsequent years the claims have been allowed. The position in law is
that once the claim of an unit for being considered as an Small Scale
Industrial Undertaking stand admitted and the deduction allowed, in
subsequent years the claim cannot be varied to the detriment of the
undertaking. In this regard, reference is made to the
decision of the Hon'ble ITAT Chandigarh 'A' Bench in Micro
Instrument Co.Vs. ITA 2008 12 DTR 501. It has been held by the
Hon'ble Tribunal that once the relief under s. 80IB has been allowed
to the assessee in the initial year then it is not open to examine the
veracity of the relief in the subsequent years especially when the
relief allowed in the initial year has not been disturbed. As per the
decision of the Hon'ble Tribunal, when in initial year the dedu ction
has been allowed the implication is that the undertaking fulfils the
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conditions as prescribed for being eligible for the said relief. In this
regard, reliance is also placed on the decision of the Hon'ble 'H' Bench
of the Delhi ITAT in Tata Communication Internet Services Ltd. Vs.
ITA 2010 39 SOT 106 Delhi. In the said decision the said legal
position has again been reiterated that subsequent to the granting of
the claim, it is not possible to pick up a subsequent assessment year
and to hold that there has been violation of the provisions. In the said
case, the Hon''ble Tribunal was dealing with similar claim under s.
80IA and has observed that the bar as provided in s. 80IA(3) has to
be considered only for the first year of the claim of deduction. The
Hon'ble Tribunal has observed that the bar as provided in sub-section
3 is in relation to the formation of the undertaking and once the
formation is complete, the development of the undertaking cannot
put cannot be put under the restraints as stipulated in sub- section 3.
It has been held by the Hon'ble Tribunal in the said case that "the
eligibility for the claim of deduction u/s 80IA by applying the restrains
of section 80IA (3) cannot be considered for every year of the claim
of deduction u/s 80IA but can be considered only in the year of
formation of the business." Thus, the ratio of the said decisions is
that the restraints as found in the Statute can only be applied with
reference to the first year of the claim and not in the subsequent
year. In the case of the appellant the claim had been allowed in the
earlier year and therefore based on the ratio of the decision as cited
above it is held that the relief allowed under s. 80IB could not be
withdrawn in a subsequent year with reference to the restraints as
mentioned in s. 80IB(3)which have to be applied in the initial year."
9. Thus, we notice that the Ld CIT(A) has given clear finding that the
assessee is eligible to claim deduction u/s 80IB as per the provisions of
sec. 80IB(3)(ii) of the Act. The Ld CIT(A) has further held that the
question as to whether the assessee is a "Small Scale Undertaking" or not
has to be examined as per the provisions of Industries (Development and
Regulation) Act, 1951. Another important point noted by the Ld CIT(A) is
that the assessee had been allowed deduction u/s 80IB of the Act in the
years earlier to the two years under consideration, meaning thereby the
eligibility of the assessee to claim deduction u/s 80IB of the Act had
already been examined in the earlier years. Hence, by placing reliance on
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some of the judicial decisions, the Ld CIT(A) held that the assessing
officer, after having accepted the eligibility of the assessee to claim
deduction u/s 80IB of the Act in the earlier years and after having allowed
the deduction in the initial year as well as in some of the subsequent
years, is not correct in examining the eligibility of the assessee again in
other subsequent years. Accordingly he held that the action of the AO has
to be considered as taken on mere change of opinion only.
10. On a combined reading of the discussions made by the Ld CIT(A)
on legal issue and also on merits, we are of the view that the Ld CIT(A)
was justified in holding that the assessing officer has proceeded to
examine the eligibility of the assessee to claim deduction u/s 80IB of the
Act for the two years under consideration merely on change of opinion.
Further, the various judicial decision relied upon by Ld CIT(A) would show
that, after having accepted that the assessee is a small scale industry for a
good number of earlier years, it is not open for the AO to change his view,
that too only for two years under consideration. Accordingly, we uphold
the orders passed by Ld CIT(A) for both the years under consideration.
11. Both the parties argued on the issue relating to reopening of the
assessments was made on the basis of audit objections. We do not find it
necessary to discuss about the same in view of our decision stated above.
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12. In the result, both the appeals filed by the revenue are dismissed.
Pronounced accordingly on 9th Oct, 2015.
9th Oct, 2015
Sd sd
(AMARJIT SINGH) ( B.R. BASKARAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai: 9th
Oct, 2015.
.../ SRL , Sr. PS
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The CIT(A)- concerned
4. / CIT concerned
5. , , /
DR, ITAT, Mumbai concerned
6. / Guard file.
/ BY ORDER,
True copy
(Asstt. Registrar)
, /ITAT, Mumbai
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