Commissioner Of Income Tax v. International Tractors Ltd

$~ * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 1082/2005 Reserved on: 4[th] May, 2017 Decision on: July 20, 2017 COMMISSIONER OF INCOME TAX .....Appellant Through: Mr. Ashok Manchanda, Senior Standing Counsel and Mr. Raghvendra Singh, Junior Standing Counsel versus INTERNATIONAL TRACTORS LTD. .....Respondent Through: Mr. Ajay Vohra, Senior Advocate with Mr. Dushyant Monocha, Mr. Ashish Gupta and Ms. Bhavita Kumar, Advocates. + ITA 690/2008 COMMISSIONER OF INCOME TAX .....Appellant Through: Mr. Dileep Shivpuri, Senior Standing Counsel and Mr. Sanjay Kumar, Junior Standing Counsel versus INTERNATIONAL TRACTORS LTD. .....Respondent Through: Mr. Ajay Vohra, Senior Advocate with Mr. Dushyant Monocha, Mr. Ashish Gupta and Ms. Bhavita Kumar, Advocates + ITA 225/2009 COMMISSIONER OF INCOME TAX .....Appellant ________________________________________________________________________________ ITA Nos.1082/2005; 690/2008; ITA 225/2009; 1189/2009 & 251/2010 Through: Mr. Ashok Manchanda, Senior Standing Counsel and Mr. Raghvendra Singh, Junior Standing Counsel versus INTERNATIONAL TRACTORS LTD. .....Respondent Through:Mr. Ajay Vohra, Senior Advocate with Mr. Dushyant Monocha, Mr. Ashish Gupta and Ms. Bhavita Kumar, Advocates. + ITA 1189/2009 COMMISSIONER OF INCOME TAX .....Appellant Through: Mr. Ashok Manchanda, Senior Standing Counsel and Mr. Raghvendra Singh, Junior Standing Counsel versus INTERNATIONAL TRACTORS LTD. .....Respondent Through: Mr. Ajay Vohra, Senior Advocate with Mr. Dushyant Monocha, Mr. Ashish Gupta and Ms. Bhavita Kumar, Advocates. + ITA 251/2010 COMMISSIONER OF INCOME TAX .....Appellant Through: Mr. Ashok Manchanda, Senior Standing Counsel and Mr. Raghvendra Singh, Junior Standing Counsel versus INTERNATIONAL TRACTORS LTD. .....Respondent Through: Mr. Ajay Vohra, Senior Advocate with Mr. Dushyant Monocha, Mr. Ashish Gupta and Ms. Bhavita Kumar, Advocates. ________________________________________________________________________________ CORAM: JUSTICE S.MURALIDHAR JUSTICE CHANDER SHEKHAR J U D G M E N T % 20.07.2017 Dr. S.Muralidhar, J. 1. These are appeals by the Revenue under Section 260A of the Income Tax Act, 1961 (‘Act’) directed against the various orders of the Income Tax Appellate Tribunal (‘ITAT’). Questions of law 2. The questions framed for consideration in each of the appeals (with the corresponding appeal number in the ITAT) read thus: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ Background facts 3. The background facts are that the Respondent/Assessee was incorporated in 1995 and is engaged in the business of manufacturing and trading agricultural tractors/tractor parts and components. The -Assessee commenced its production in the Financial Year (‘FY’) 199798 and treated it as the ‘initial assessment year’ for the purposes of claiming the benefit of Section 80-IA of the Act. In terms of Notification No. SO 232(E) dated 2[nd] April, 1991, an industrial ________________________________________________________________________________ undertaking could be treated as a small scale undertaking under Section 11B of the Industries (Development and Regulation) Act, 1951 (‘IDR Act’) if its total investment in fixed assets i.e., Plant & Machinery (‘P&M’) did not exceed Rs. 60 lakhs. The notification was operative up to 9[th] December, 1997. ________________________________________________________________________________ undertaking could be treated as a small scale undertaking under Section 11B of the Industries (Development and Regulation) Act, 1951 (‘IDR Act’) if its total investment in fixed assets i.e., Plant & Machinery (‘P&M’) did not exceed Rs. 60 lakhs. The notification was operative up to 9[th] December, 1997. 4. During the AY 1997-98, the total investment in fixed assets worked out to Rs. 1.07 crores. The stand of the Revenue was, therefore, that in the initial year the Assessee was not a small scale industrial undertaking and was not entitled to the deduction under Section 80-IA of the Act. While the Assessee claimed this deduction in the original return filed for AY 1997-98, it did not make any such claim in its revised return. Further, no such deduction was allowed by the AO for the AY 1997-98. 5. A fresh notification dated 9[th] December, 1997 was issued by the Central Government under Section 11B of the IDR Act. The limit of investment by a Small Scale Industry (‘SSI’) in fixed assets in the form of P&M was raised from Rs. 60 lakhs to Rs. 3 crores. This notification became operative from 10[th] December, 1997. In terms of Schedule 4 to the Audit Report, the total investment made by the Assessee as on 31[st]March, 1998 in fixed assets i.e., in P&M (including cost of material handling equipment, electric fittings, generators and computers etc.) worked out to Rs. 3.37 crores. The Assessee also applied to the Ministry of Industries for being registered as a Medium Scale Unit and it, in fact, got registered as a Medium Scale Industry (‘MSI’). ________________________________________________________________________________ 6. By a subsequent notification dated 24[th] December, 1999 issued by the Central Government, the limit of investment in fixed assets in P&M by an SSI got reduced from Rs. 3 crores to Rs. 1 crore. This became effective from 25[th] December, 1999. The case of the Revenue is that this notification also applied to the Assessee since it never obtained a permanent registration as an SSI unit. Further, as on 31[st] March, 1999, the Assessee’s total investment in P&M worked out to more than Rs. 6.42 crores. This increased to Rs. 19.82 crores as on 31[st] March, 2000 and approximately Rs. 23 crores as on 31[st] March, 2001. The case of the Revenue, therefore, is that the Assessee was never an SSI. 7. The case of the Assessee, on the other hand, was that it was an SSI in the initial year i.e., AY 1997-98 as was evident from the SSI registration certificate issued in its favour. Its investment in P&M in terms of notification dated 1[st] January, 1993 under the IDR Act was well below the stipulated limit of Rs. 60 lakhs. It was after going through all the details that the Assessing Officer (‘AO’) dealt with the issue of deduction under Section 80-IA of the Act. A total deduction of Rs. 1,01,50,131 was claimed by the Assessee but the AO allowed only an amount of Rs. 95,59,064. Facts relevant for AYs 1998-99 to 2000-2001 8. It transpires that for the AY 1999-00, after the AO allowed the deduction under Section 80-IA of the Act, the Commissioner of Income Tax [‘CIT’] exercised jurisdiction under Section 263 of the Act. It was held by the CIT by an order dated 11[th] July, 2003 that the deduction under Section 80-IA of the Act ought not to have been granted to the ________________________________________________________________________________ Facts relevant for AYs 1998-99 to 2000-2001 8. It transpires that for the AY 1999-00, after the AO allowed the deduction under Section 80-IA of the Act, the Commissioner of Income Tax [‘CIT’] exercised jurisdiction under Section 263 of the Act. It was held by the CIT by an order dated 11[th] July, 2003 that the deduction under Section 80-IA of the Act ought not to have been granted to the ________________________________________________________________________________ Assessee as it was, in fact, a medium scale or large scale industrial undertaking during the AY in question. The CIT opined that the allowing of the deduction would go against the legislative intent. The CIT observed that: “Obviously, the legislature did not intend to give the benefit of deduction under Section 80-IA to these units continuously for 10 years as that would adversely affect the interests of SSIs in the competitive market.” The CIT, accordingly, directed the AO to withdraw the deduction allowed under Section 80-IA of the Act and enhance the taxable income of the Assessee for AY 1999-00 by Rs. 3.61 crores. 9. Within three days thereafter, on 14[th] July, 2003, the AO issued a notice to the Assessee under Section 148 of the Act seeking to re-open the assessment for the AY 1998-99. This has given rise to the first question framed in the appeal relevant to this AY. 10. The facts relevant to the AY 2000-01 (ITA No. 225/2009) are that the return was filed by the Assessee for this AY on 30[th] November, 2000. Initially, no deduction under Section 80-IA of the Act was claimed. A revised return was filed on 12[th] October, 2001 claiming deduction of Rs. 6.40 crores under Section 80-IA of the Act. The case was taken up for scrutiny and the assessment was completed by the AO on 29[th] January, 2001 by restricting the deduction under Section 80-IA of the Act at Rs. 95,59,064. The Assessee challenged the assessment order before the CIT (A) who partly allowed the appeal by the order dated 4[th] March, 2002. The deduction under Section 80-IA of the Act was allowed to the extent of Rs. 1,03,31,268. ________________________________________________________________________________ 11. On the basis of the order passed by the CIT under Section 263 of the Act for the AY 1999-00 on 11[th] July, 2003, the AO issued a notice under Section 148 of the Act seeking to re-open the assessment on the ground of wrongful claim of deduction by the Assessee under Section 80-IA of the Act. This notice was issued on 14[th] July, 2003. In response thereto, the Assessee filed a return on 13[th] August, 2003 declaring the same income as per the revised return. A notice was issued to the Assessee on 13[th] May, 2004 under Section 142 (1) of the Act requiring it to submit the details of P&M in terms of Section 11B of the IDR Act. The AO held that the total investment as per these details worked out to Rs. 9,27,11,983 whereas the ceiling as per the notification dated 24[th]December, 1999 for an SSI was Rs. 1 crore only. By the assessment order dated 28[th] February, 2005, the above deduction was disallowed and added to the taxable income of the Assessee. 12. By the re-assessment order dated 14[th] July, 2003 for AY 1998-99, the AO re-calculated the opening value of P&M for the preceding year as Rs. 75,24,787/- and after adding it to the investments in P&M during the AY, calculated the total value of P&M as Rs. 3,03,07,705/-. It was held that since on the last date of the previous financial year i.e., as on 31[st] March, 2000, the investment in P&M was more than the limit prescribed for SSIs, the deductions under Section 80-IA of the Act were not allowable. The taxable income from the business was computed at Rs. 3,44,40,345/-, income from other sources at Rs. 42,87,350/- and the total taxable income at Rs. 3,87,27,695/-. It must be recalled that this re-assessment order was under Section 148/143(3) of the Act. ________________________________________________________________________________ ________________________________________________________________________________ 13. Feeling aggrieved, the Assessee went in appeal before the CIT(A) which by the order dated 9[th] September, 2005 held that the action under Section 263 of the Act was not warranted. The order passed thereunder was quashed. Further, since the ITAT had for the subsequent AY i.e., 1999-00 held that the Assessee was entitled to deduction under Section 80-IA of the Act, it was held that the Assessee was entitled to the said deduction for the AY in question i.e., 1998-99. The proceeding initiated under Section 147 of the Act was held to be void ab initio. 14. Meanwhile, as already noticed, for AY 1999-00, the ITAT allowed the Assessee’s appeal by order dated 1[st] March, 2004. Incidentally, that order is also under challenge by the Revenue in this Court by way of ITA No. 497/2004. Since that appeal involved an additional point regarding the impugned order not having been signed by both the members of the ITAT before one of them retired, it has been kept for hearing on a separate date. 15. As far as AY 2000-01 is concerned, an assessment order was passed on 28[th] February, 2005 under Section 143(3)/263 of the Act disallowing the deduction under Section 80-IA on the ground that the investment made in P&M up to 31[st] March, 2000 was more than the prescribed limit. By the order dated 1[st] September 2005, the CIT(A) allowed the Assessee’s appeal thereby allowing the deduction. 16. Against the orders of the CIT(A) dated 9[th] September, 2005 for AY 1998-99 and 1[st] September, 2005 for AY 2000-01, the Revenue filed ITA Nos. 4571/De1./2005 and ITA No. 4572/De1/2005 respectively. ________________________________________________________________________________ By a common order dated 20[th] June, 2008, the ITAT dismissed both the appeals of the Revenue and held that the Assessee was entitled to deduction under Section 80-IA of the Act. Facts relevant for AY 2001-02 17. Turning now to AY 2001-02, by the assessment order dated 7[th]May, 2004 under Section 143 (3) read with Section 263 of the Act, the AO disallowed the deductions under Section 80-IA of the Act. The appeal filed by the Assessee against the said order was allowed by the CIT (A) by an order dated 24[th] March, 2005. Against the said order, ITA No. 2668/Del/2005 was filed by the Revenue before the ITAT. In the said appeal for AY 2001-02, the Assessee also filed cross objections which the Assessee subsequently withdrew as dismissed. The ITAT by the order dated 17[th]August, 2007 dismissed the Revenue’s appeal and held that the Assessee was entitled to the deduction under Section 80-IA of the Act. 18. Against the said order, the appeal filed by the Revenue in this Court is ITA No. 690/2008. The Revenue filed a separate ITA No. 1082/2005 against the same order. By order dated 28[th] March, 2005, the ITAT allowed the Assessee’s appeal being ITA No. 469/Del/2004 challenging the order passed by the CIT on 5[th] December, 2003 under Section 263 of the Act. The ITAT agreed with the Assessee that the CIT was not justified in invoking Section 263 of the Act. 19. Consequently, ITA Nos. 690/2008 and 1082/2005 were filed by the Revenue in this Court pertaining to the same AY i.e., 2001-02. While ________________________________________________________________________________ the question of law pertaining to ITA No. 690/2008 concerns Section 80-IA of the Act, the question of law in ITA No. 1082/2005 pertains essentially to Section 263 of the Act. They are also concerned with the directions given by the CIT to the AO to make additions on account of the difference in valuation of the closing stocks and interest receivable on outstanding balance. Facts relevant for AY 2002-03 19. Consequently, ITA Nos. 690/2008 and 1082/2005 were filed by the Revenue in this Court pertaining to the same AY i.e., 2001-02. While ________________________________________________________________________________ the question of law pertaining to ITA No. 690/2008 concerns Section 80-IA of the Act, the question of law in ITA No. 1082/2005 pertains essentially to Section 263 of the Act. They are also concerned with the directions given by the CIT to the AO to make additions on account of the difference in valuation of the closing stocks and interest receivable on outstanding balance. Facts relevant for AY 2002-03 20. Turning now to AY 2002-03, the AO by an order dated 28[th] March, 2005 declined to allow deductions under Section 80-IA of the Act after noticing that under Notification dated 24[th] December, 1999, the ceiling for investment in SSIs was Rs. 1 crore whereas on the last date of the previous year i.e., 31[st] March, 2002, the investment for P&M was to the tune of Rs. 24.02 crores. Additionally, the AO also made additions under Section 40(a)(i) of the Act for failure by the Assessee to deduct tax at source in regard to the payments made to a French company as miscellaneous expenses and salary to foreign personnel under a Technical Collaboration Agreement. 21. The Assessee’s appeal was allowed by the CIT(A) by an order dated 25[th] October, 2005. Relying upon the orders passed by the ITAT for AYs 1999-00 and 2001-02, the deduction under Section 80-IA of the Act was allowed. Further, as regards Section 40(a)(i) of the Act, the CIT(A) observed that the payment was only a re-imbursement of the expenditure and not payment of royalty and, therefore, the said provision was not applicable. Hence, the said addition was deleted. ________________________________________________________________________________ 22. The Revenue’s appeal (ITA No. 89/Del/2006) was dismissed by the ITAT by order dated 5[th] September, 2008 following its orders dated 20[th]June, 2008 for AYs 1998-99 and 2000-01. Submissions of counsel for the Revenue 23. Mr Ashok Manchanda, learned Senior Standing counsel appearing for the Revenue, submitted as under: ________________________________________________________________________________ 22. The Revenue’s appeal (ITA No. 89/Del/2006) was dismissed by the ITAT by order dated 5[th] September, 2008 following its orders dated 20[th]June, 2008 for AYs 1998-99 and 2000-01. Submissions of counsel for the Revenue 23. Mr Ashok Manchanda, learned Senior Standing counsel appearing for the Revenue, submitted as under: (i) The Assessee was not a small scale industry in the ‘initial assessment year’ i.e., AY 1997-98 as the investment in P&M was above Rs. 60 lacs, which was beyond the permissible limit. Even for the AY 1999-00, the investment in P&M was Rs. 6.42 crores which was more than double the specified limit of Rs. 3 crores. In the first/initial year i.e., 1997-98, the deduction under Section 80-IA was neither claimed by the Assessee nor allowed. Therefore, there was no occasion for the AO to examine if the Assessee fulfilled the requisite pre-conditions for claiming deduction under Section 80-IA of the Act for AY 1997-98. Even for AYs 1999-00, 2000-01, 2001-02, 2002-03, the Assessee had not claimed deduction under Section 80-IA of the Act in its returns initially. The deductions were claimed only in the revised returns. In none of the abovementioned AYs or statutory Tax Audits Reports furnished by the Assessee along with the Returns of Incomes was it specified or certified that that Assessee was eligible for deduction under Section 80-IA. This was the same even as per the Assessee's own auditor. assessment year’ i.e., AY 1997-98 as the investment in P&M was above Rs. 60 lacs, which was beyond the permissible limit. Even for the AY 1999-00, the investment in P&M was Rs. 6.42 crores which was more than double the specified limit of Rs. 3 crores. In the first/initial year i.e., 1997-98, the deduction under Section 80-IA was neither claimed by the Assessee nor allowed. Therefore, there was no occasion for the AO to examine if the Assessee fulfilled the requisite pre-conditions for claiming deduction under Section 80-IA of the Act for AY 1997-98. Even for AYs 1999-00, 2000-01, 2001-02, 2002-03, the Assessee had not claimed deduction under Section 80-IA of the Act in its returns initially. The deductions were claimed only in the revised returns. In none of the abovementioned AYs or statutory Tax Audits Reports furnished by the Assessee along with the Returns of Incomes was it specified or certified that that Assessee was eligible for deduction under Section 80-IA. This was the same even as per the Assessee's own auditor. ________________________________________________________________________________ (ii) The certificate issued to the Assessee on 24[th] February, 1997 by Project Manager of the District Industries Centre, Hoshiarpur under which the Assessee was registered as an SSI for 'Assembling of Tractors' provided that an Undertaking would stop enjoying the status of an SSI as and when the total machinery exceeded the prescribed limit. In each year, the claim was always being made by attaching only an Income Calculation Sheet signed by a representative of the Assessee and being submitted along with the revised returns. Project Manager of the District Industries Centre, Hoshiarpur under which the Assessee was registered as an SSI for 'Assembling of Tractors' provided that an Undertaking would stop enjoying the status of an SSI as and when the total machinery exceeded the prescribed limit. In each year, the claim was always being made by attaching only an Income Calculation Sheet signed by a representative of the Assessee and being submitted along with the revised returns. (iii) Section 80-IA (12) (f) uses the term 'previous year' and not ‘initial investment year’. The Assessee claimed deduction for AY 1999-00 under Section 80-IA despite the fact that the investment in P&M in the previous year was Rs. 6.75 crores which exceeded the prescribed limit. Relying on the decision of this Court in CIT v. Natraj Stationery Products Pvt. Ltd. (2009) 312 ITR 22 (Del) and Praveen Soni v. CIT (2011) 241 CTR 542 (Del), it is submitted that the correct interpretation of Section 80-IA(12)(f) was to examine if, on the last date of the previous year relating to the concerned AY in which the claim under Section 80-IA was being made, the investment by the Assessee in the P&M was within the prescribed limit for being recognized as an SSI unit. Though the words ‘previous year’ had been used in Sections 3, 4 and 5 of the Act, they were hardly used in the whole of Sections 80-IA and 80-IB of the Act. However, in Section 80-IA(12)(f) there was a specific reference to the ‘previous year’ in the context of the definition of an SSI. Therefore, the SSI status of an ‘initial investment year’. The Assessee claimed deduction for AY 1999-00 under Section 80-IA despite the fact that the investment in P&M in the previous year was Rs. 6.75 crores which exceeded the prescribed limit. Relying on the decision of this Court in CIT v. Natraj Stationery Products Pvt. Ltd. (2009) 312 ITR 22 (Del) and Praveen Soni v. CIT (2011) 241 CTR 542 (Del), it is submitted that the correct interpretation of Section 80-IA(12)(f) was to examine if, on the last date of the previous year relating to the concerned AY in which the claim under Section 80-IA was being made, the investment by the Assessee in the P&M was within the prescribed limit for being recognized as an SSI unit. Though the words ‘previous year’ had been used in Sections 3, 4 and 5 of the Act, they were hardly used in the whole of Sections 80-IA and 80-IB of the Act. However, in Section 80-IA(12)(f) there was a specific reference to the ‘previous year’ in the context of the definition of an SSI. Therefore, the SSI status of an ________________________________________________________________________________ industrial unit had to be necessarily determined on the last date of each previous year and not just the one relevant to the initial investment year. An industry started in the latter part of a year could be so managed and arranged to qualify the criteria for an SSI unit even if it was a mega industry. If the interpretation adopted by the CIT(A) and the ITAT were to be accepted, then even big industrial houses would become eligible for deductions and that would defeat the very objective of providing the deduction. (iv) As far as Section 263 of the Act is concerned, although this was not a question framed for AYs 1999-00, 2002-03 or even 1998-99 and 2000-01, the Court should, in the interests of justice, permit the Revenue to urge that question as it had been inadvertently omitted to be framed for the said years. It is submitted that the wrong claim made by the Assessee justified the re-opening ordered by the CIT under Section 263 of the Act. Revenue was placed reliance on the decisions in CIT v. Delhi Press Patra Prakashan Ltd. (2013) 355 ITR 14 (Del); Saurashtra Cement & Chemical Industries Limited v. CIT (1994) 122 CTR 329 (Guj); CIT v. Paul Brothers (1995) 216 ITR 548 (Bom); CIT v. Tata Communications Internet Services Ltd. (2012) 251 CTR 290 (Del);Ace Multi Axes Systems Ltd. v. Deputy CIT (2014) 367 ITR 266 (Kar) and CIT v. Sunder Forging (decision of the Punjab and Haryana High Court in ITA Nos. 242&243/2012 & 92/2014). ________________________________________________________________________________ ________________________________________________________________________________ (v) It is further submitted that the Circulars issued by the Ministry under the IDR Act are not relevant and binding and, in any event, not applicable to the Assessee. What had to be seen is whether as per the Circulars issued by the CBDT, there were five conditions required to be fulfilled cumulatively if an Assessee was to claim deduction u/s 80-IA(l) of the Act. The first two conditions related to the year of formation of the industrial undertaking. These, therefore, pertained to the initial AY. However, for the other three conditions, they would have to be complied with and fulfilled year after year i.e., in every previous year. All these three conditions had to be fulfilled cumulatively. It was impermissible that out of the three conditions, one or two conditions were fulfilled in a year while the others remained unfulfilled. under the IDR Act are not relevant and binding and, in any event, not applicable to the Assessee. What had to be seen is whether as per the Circulars issued by the CBDT, there were five conditions required to be fulfilled cumulatively if an Assessee was to claim deduction u/s 80-IA(l) of the Act. The first two conditions related to the year of formation of the industrial undertaking. These, therefore, pertained to the initial AY. However, for the other three conditions, they would have to be complied with and fulfilled year after year i.e., in every previous year. All these three conditions had to be fulfilled cumulatively. It was impermissible that out of the three conditions, one or two conditions were fulfilled in a year while the others remained unfulfilled. 24. In addition to the oral submissions, there were three written submissions filed by Mr. Manchanda. The first written submission was dated 10[th] April, 2017 running into 13 pages. In this written submission, Mr. Manchanda also submitted that in Form No. 10 CCB of the Income Tax Rules, 1962 (‘Rules’), the Assessee had failed to disclose the relevant facts fully and truly. In para 18(e) of the said form, information had to be given in terms of ‘Yes’ or ‘No’ if the unit was an SSI on the last day of the previous year. Due to the failure on the part of the Assessee to do so for AY 1998-99, the AO was justified in re-opening the assessment under Section 148 of the Act. Likewise, re-opening for AY 2000-01 was also, therefore, justified. Mere furnishing of an SSI certificate was insufficient. It was important that for the purposes of ________________________________________________________________________________ claiming deductions under Section 80-IA of the Act, the investments made by the Assessee for P&M did not exceed the limit on the last date of previous year. 25. Mr. Manchanda defended the orders passed by the CIT under Section 263 of the Act. He relied on the decision dated 29th November 2011 of this Court in ITA No. 973/2011 (CIT v. DLF Power Ltd.); Thomson Press (India) Ltd. v. CIT (2015) 379 ITR 222 (Del); Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC); CIT v. Electro House (1971) 82 ITR 824 (SC); CIT v. Infosys Technologies Limited (2012) 214 ITR 293 (Kar.); CIT v. Abhishek Industries Limited (2006) 286 ITR 1 (P&H). 26. Mr. Manchanda gave a second set of written submissions on 1[st]May, 2017, this time running into 9 pages. Apart from repeating many of the arguments already made earlier, he also referred to a host of decisions of ITAT directly on the point favouring the Revenue. The Court declines to name all of them since in any event such decisions of the ITAT are not binding on it. Mr. Manchanda added one more decision of the Karnataka High Court to this list i.e., Sami Labs Ltd. v. ACIT (2011) 239 CTR 510 (Kar.). A third set of written submissions by way of rejoinder was filed by Mr. Manchanda on 11[th] May, 2017 where all of the above submissions were reiterated. Submissions on behalf of the Assessee 26. Mr. Manchanda gave a second set of written submissions on 1[st]May, 2017, this time running into 9 pages. Apart from repeating many of the arguments already made earlier, he also referred to a host of decisions of ITAT directly on the point favouring the Revenue. The Court declines to name all of them since in any event such decisions of the ITAT are not binding on it. Mr. Manchanda added one more decision of the Karnataka High Court to this list i.e., Sami Labs Ltd. v. ACIT (2011) 239 CTR 510 (Kar.). A third set of written submissions by way of rejoinder was filed by Mr. Manchanda on 11[th] May, 2017 where all of the above submissions were reiterated. Submissions on behalf of the Assessee 27. Mr. Ajay Vohra, learned Senior Counsel appearing for the Respondent/Assessee, took the Court through the Scheme of Section ________________________________________________________________________________ 80-IA and, in particular, Section 80-IA(7) which categorically stated that the benefit of deduction would be available for every subsequent AY after the ‘initial assessment year’ although a report had to be filed in the prescribed format in terms of Section 80-IA(8) for each AY. He submitted that once the eligibility condition was satisfied in the ‘initial assessment year’, then the benefit of deductions would continue for ten successive years. He submitted that the decisions in Praveen Soni v. CIT (supra) and CIT v. Natraj Stationery Products Pvt. Ltd. (supra) in fact supported the Assessee’s case. 28. As regards Form 10-CCB, Mr Vohra pointed out that this came about with the bifurcation of Section 80-IA and 80-IB with effect from 1[st] April, 2000. Correspondingly, Form 10-CCB did not come into force till AY 2003-04. He further submitted that the said form was a composite form for different businesses. Mr. Vohra pointed out that the eligibility limit for being recognized as an SSI in terms of investments made in P&M could vary from year to year. It stood raised from Rs. 60 lacs to Rs. 3 crores for AY 1997-98 and reverted to Rs. 1 crore by notification dated 24[th] December, 1999. If the interpretation sought to be advanced by the Revenue were to be adopted, then the entire Section would become non-workable. The idea was to ensure that there are incentives for SSIs and to assure them of continuous deductions for at least ten years after the initial assessment year notwithstanding that in the later AYs they may seize to comply with the conditions for recognition as an SSI. ________________________________________________________________________________ 29. As far as the invocation of Section 263 of the Act is concerned, Mr. Vohra submitted that there were two conditions to be fulfilled – one that the order of the AO should have been erroneous, and the second that it should have been prejudicial to the Revenue. Except for these debatable issues, there was no justification for re-opening the assessment. Reliance was placed on Commissioner of Income-Tax v. Max India Ltd. (2007) 295 ITR 282 (SC). Mr Vohra also relied on the decisions in Bajaj Tempo Ltd. v. CIT (1992) 196 ITR 188 (SC); CIT v. Tata Communications Internet Services Ltd. (supra); Saurashtra Cement & Chemical Industriesv. CIT (supra); CIT v. Delhi Press Patra Prakashan Ltd (supra) and CIT v. Sunder Forging (supra) to urge that the interpretation placed on Section 80-IA by the Revenue was untenable and that if in the previous year relating to the initial assessment year, the conditions for eligibility were satisfied, then notwithstanding that the Assessee may not have complied with those conditions of eligibility in the subsequent AYs, the deductions nevertheless should be allowed. 30. Pressing for a liberal construction of a beneficial provision, reliance was placed by Mr Vohra on the decision of P.R. Prabhakar v. CIT (2006) 284 ITR 548 (SC). He also relied on the principle of consistency and referred to the decision in Shasun Chemicals & Drugs Ltd. v. CIT (2016) 388 ITR 1 (SC) and the decision of this Court dated 11[th]January, 2011 in ITA No. 889/2009 (CIT v. Rajasthan Breweries Limited) which was upheld by the Supreme Court by dismissal of the Revenue’s Special Leave Petition[CC No. 1379/ 2014 (SC)] on 7[th]February, 2014. ________________________________________________________________________________ 31. On the question of change in the method of valuation of inventory, reliance was placed on the decision of Madras High Court in CIT v. Carborundum Universal Ltd. (1984) 149 ITR 759 (Mad.) which was upheld by the Supreme Court by the dismissal of the Revenue’s SLP in CIT v. Carborundum Universal Ltd. (2004) 187 ITR 38 (SC). Reliance was also placed on the decision of this Court in CIT v.Indo Rama Synthetics Ltd. (2009) 180 Taxman 35 (Del) and in CIT v. Modi Rubbers Ltd. (No. 2) (1998) 230 ITR 820 (Del). On the issue of reimbursement of expenses not being subjected to TDS, reliance was placed on the decision of the Supreme Court in DIT v. A.P. Moller Moersk (2017) 392 ITR 186 (SC). 32. On the issue of exercise of jurisdictional powers under Section 263 of the Act, reliance was placed on the decision in Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC) and the decision of Punjab and Haryana High Court in CIT v. Max India Limited (2004) 268 ITR 128 (P&H) which was upheld by the Supreme Court in CIT v. Max India Limited (2007) 295 ITR 282 (SC). Interpretation of Section 80 IA 33.The Court first takes up for consideration the question of interpretation of Section 80-IA of the Act. The said section, provided for "Deductions in respect of profits and gains from industrial undertakings, etc. in certain cases." Sub-section (1) stated that where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking on or after the ________________________________________________________________________________ 1st day of April, 1997 (eligible business), "there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to the percentage specified in sub-section (5) and for such number of assessment years as is specified in sub-section (6)." Sub-section (2) set out the conditions which must be fulfilled by an undertaking to be eligible for the deduction. 34. With effect from 1[st] April, 2000, Section 80-IA has been split into Section 80-IA pertaining to “deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure -development, etc.” and Section 80IB pertaining to “deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings.” In the present case, we are only concerned with Section 80-IA as it stood prior to the above amendment particularly with reference to AY 1998-99, which, according to the Assessee, was the initial year whereas according to the Revenue the initial year should be taken to be AY 1997-98. 35. An examination of Section 80-IA reveals that the following conditions are required to be fulfilled in terms of Section 80-IA. These conditions are that first an industrial undertaking in question: (i) does not form by splitting up, or the reconstruction, of a business already in existence; already in existence; (ii) does not form by the transfer to a new business of machinery or plant previously used for any purpose; plant previously used for any purpose; ________________________________________________________________________________ 35. An examination of Section 80-IA reveals that the following conditions are required to be fulfilled in terms of Section 80-IA. These conditions are that first an industrial undertaking in question: (i) does not form by splitting up, or the reconstruction, of a business already in existence; already in existence; (ii) does not form by the transfer to a new business of machinery or plant previously used for any purpose; plant previously used for any purpose; ________________________________________________________________________________ (iii) manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India. 36. Clause (a) of Sub-Clause (iv) of Sub-Section (2) of Section 80-IA states that in the case of an industrial undertaking not specified in sub-section (b) or sub-section (c), it begins to manufacture or produce articles or things or operate such plant or plants at any time between 1[st]April, 1991 and 31[st] March, 1995; Clause (b) of Sub-Clause (iv) of Sub-Section (2) of Section 80-IA states that in the case of an industrial undertaking located in an industrially backward State specified in the Eighth Schedule or set up in any part of India for the generation, or generation and distribution, of power, it begins to manufacture or produce articles or things or operate its cold storage plant or plants to generate power at any time between 1[st] April, 1993 and 31[st] March, 2000; Clause (c) of Sub-Clause (iv) of Sub-Section (2) of Section 80-IA states that in the case of an industrial undertaking located in such industrially backward district as the Central Government may specify as an industrially backward district of Category A or an industrially backward district of Category B, and it begins to manufacture or produce articles or things or to operate its cold storage plant or plants at any time between 1[st] April, 1995 and 31[st] May, 2000; Clause (d) of Sub-Clause (iv) of Sub-Section (2) of Section 80-IA states that in the case of an industrial undertaking being an SSI where it begins to manufacture or produce articles or things at any time during the period beginning on the 1[st] April, 1995 and ending on 31[st] March, 2000. ________________________________________________________________________________ 37. A further condition to be satisfied is that the undertaking manufactures or produces articles or things, employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers if it is carried on without the aid of power. 38. Section 80-IA specifies what the extent of deduction available would be. In the context that an undertaking is an SSI, then 25% of the profits and gains derived from such industrial undertaking would be allowed as a deduction. The extent of which deductions would be allowed is specified in Section 80-IA(6)(ii) where the undertaking is not a cooperative society but an SSI unit. The benefit is allowed for ten AYs. This has to be read together with Section 80-IA(1) where it says that “… there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to the percentage specified in sub-section (5) and for such number of assessment years as is specified in sub-section (6).” Therefore, the numbers of AYs for which the benefit is allowed is specified as ten where it is an SSI unit. 39. There is no specific provision which states that the eligibility for availing the deduction should be shown to be fulfilled at the end of each and every previous year relevant to the AY relevant to the ten successive AYs for which the benefit is granted. The context of -definition of ‘initial assessment year’ as contained in Section 80 ________________________________________________________________________________ 39. There is no specific provision which states that the eligibility for availing the deduction should be shown to be fulfilled at the end of each and every previous year relevant to the AY relevant to the ten successive AYs for which the benefit is granted. The context of -definition of ‘initial assessment year’ as contained in Section 80 ________________________________________________________________________________ IA(12)(c) is relevant. This refers to the AY relevant to the previous year “in which the industrial undertaking begins to manufacture or produce articles or things...” Under Sub-Clause 12(f) of Section 80-IA, an SSI is defined to mean 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 IDR Act. 40. While Section 80-IA(12)(f) defines an SSI to mean an industrial undertaking that has the status of an SSI on the last day of the previous year (which expression ‘previous year’ is referable to the previous year relevant to the ‘initial assessment year’), it is not meant to refer to a previous year relevant to each of the ten AYs for which benefit under Section 80-IA is availed. The very use of the word ‘initial’ preceding in the word ‘assessment year’ and a separate definition for that expression given under Section 80-IA(12)(c) is not without significance. It is only in relation to the ‘initial’ assessment year in which an undertaking begins to manufacture or produce articles or things that the following nine years are determined. The ITAT orders 41. There is little dispute on the essential fact that in the present cases. The year in which the undertaking began manufacturing or producing articles and things was during the previous year relevant to AY 1998-99. In the order of the matters decided by the ITAT, the earliest was the order passed on 1[st] March, 2004 in ITA No. 497/Del/2004. The next in chronological order is the order dated 28[th] March, 2005 passed by the ________________________________________________________________________________ ITAT in ITA No. 469/Del/2004 where it followed the previous order dated 1[st] March, 2004. 42. As already noted hereinbefore, the appeal filed in this Court by the Revenue against the order dated 1[st] March, 2004 for AY 1999-00 (ITA No. 497/2004) has been kept for hearing on a different date because one question involved in that appeal is that the Vice-President of the ITAT who presided over the Bench which passed that order ceased to be as such by the time the second member signed the order dated 1[st] March, 2004. Whether such an order could be held to be valid is a question that has been considered in that appeal by this Court. Nevertheless, the said order has been followed in the subsequent orders dated 28[th] March, 2005 of the ITAT for AY 2001-02, and order dated 17[th] August, 2007 passed by the ITAT in ITA No. 2668/Del./2005 for same AY i.e., AY 2001-02. These were followed by the orders of the ITAT dated 20[th]June, 2008 for AYs 1998-99 and 2000-01 in ITA Nos. 4571/Del./2005 and 4572/Del./2005, respectively, and 5[th] September, 2008 for AY 2002-03 in ITAT No. 89/Del./2006. 43. The ITAT in the said order agreed with the Assessee that Section 80-IA did not contemplate the carrying out of a yearly review to ensure that on the last date of other previous year, of the ten AYs for which the deduction was allowed, the eligibility condition stood fulfilled. As rightly pointed out by Mr. Vohra in the initial AY 1997-98, the Assessee was facing a loss and, therefore, did not make a claim. Nevertheless that continued to remain the initial AY. The Assessee claimed deduction only in regard to the remaining years. The ten years ________________________________________________________________________________ 43. The ITAT in the said order agreed with the Assessee that Section 80-IA did not contemplate the carrying out of a yearly review to ensure that on the last date of other previous year, of the ten AYs for which the deduction was allowed, the eligibility condition stood fulfilled. As rightly pointed out by Mr. Vohra in the initial AY 1997-98, the Assessee was facing a loss and, therefore, did not make a claim. Nevertheless that continued to remain the initial AY. The Assessee claimed deduction only in regard to the remaining years. The ten years ________________________________________________________________________________ would begin to be counted from the AY 1997-98 itself although the deduction was not claimed for that AY. It could not have been claimed for AY 1997-98 because under Section 80-IA, the aggregate deduction claimed of the Assessee could not have exceeded its gross total income. Assessee eligible to claim deduction 44. The question is whether on the last day of the previous relevant to AY 1997-98 the Assessee fulfilled the eligibility condition? It was repeatedly urged by Mr. Manchanda that the investment in P&M on the last date of previous year was above Rs. 60 lacs. He referred to an order dated 11[th] July, 2003 passed by the CIT under Section 263 of the Act for AY 1999-00. However, relevant to AY 1998-99, the factual determination by the CIT(A) and the ITAT is that the Assessee did fulfil the eligibility condition. The total investment in P&M was worked out to be Rs. 41.19 lacs. This fact has not been controverted by the Revenue. 45. The Auditor’s report ended on 31[st] March, 1997 and was in fact enclosed with the order dated 5[th] December, 2003 passed by the CIT under Section 263 of the Act for AY 2001-02. This showed the total value of P&M as per Section 11B of IDR Act as Rs. 41,19,373/-. It was explained how certain items had to be excluded as per the notification dated 1[st] January, 1993 issued under the Act, whi