Pr. Commissioner Of Income Tax, Jalandhar-I, Jalandhar v. Sh.rohit Tandon

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 272 of 2015 (O&M)Decided on : 18.09.2018 Pr. Commissioner of Income Tax, Jalandhar-I, Jalandhar ...... Appellant Versus Sh.Rohit Tandon Prop. M/s Prajna (India) Ltd. ...... Respondent 2. ITA No. 257 of 2015 (O&M) Pr. Commissioner of Income Tax, Jalandhar-I, Jalandhar ...... Appellant Versus Sh.Rohit Tandon Prop. M/s Prajna (India) Ltd. ...... Respondent 3. ITA No. 294 of 2015 (O&M) Pr. Commissioner of Income Tax, Jalandhar-I, Jalandhar ...... Appellant Versus Sh.Rohit Tandon Prop. M/s Prajna (India) Ltd. ...... Respondent 4. ITA No. 283 of 2015 (O&M) Pr. Commissioner of Income Tax, Jalandhar-I, Jalandhar Versus ...... Appellant Sh.Rohit Tandon Prop. M/s Prajna (India) Ltd. ...... Respondent CORAM : HON'BLE MR. JUSTICE AJAY KUMAR MITTALHON'BLE MR. JUSTICE AVNEESH JHINGAN Present :Mr. Vivek Sethi, Senior Standing Counselfor the appellant-revenue. Mr.Rohit Sood, Advocatefor the respondent. * * * AVNEESH JHINGAN, J. This order shall dispose of four appeals bearing ITA Nos. 272,257, 294 and 283 of 2015. These appeals have been filed by the revenueagainst the order of the Income Tax Appellate Tribunal, Amritsar Bench (forbrevity, 'the Tribunal'). Since the facts and the issues in the above saidappeals are similar, hence, these are being disposed of by a common order. 2.The details of the assessment year and ITA numbers have been tabulated below :- 3. For the sake of convenience, the facts are being narrated from ITA No.272 of 2015. 4.The revenue has filed the present appeal under Section 260-A ofthe Income Tax Act, 1961 (for brevity, 'the Act') against the order of theTribunal passed in ITA No.345 (ASR)/2009 dated 05.03.2015. According tothe appellant, following substantial questions of law arises for considerationin the present appeal:- (i)Whether on the facts and circumstances of the case the Ld.ITAT is right in deleting the addition on account ofdisallowance of deduction of `24,59,300/- made by the AO u/s10B of the Income Tax Act, 1961 ignoring the fact that thenew unit has been formed by splitting up of the existingbusiness of M/s Dynamech?ITAT is right in deleting the addition on account ofdisallowance of deduction of `24,59,300/- made by the AO u/s10B of the Income Tax Act, 1961 ignoring the fact that thenew unit has been formed by splitting up of the existingbusiness of M/s Dynamech? (ii)Whether on the facts and circumstances of the case, Ld. ITATis perverse in law and on the facts in admitting the additionalevidence, a letter dated 14.12.2009 of Mitsubishi heavyindustry limited Japan, during rectification proceedings u/s254(2) which was not produced and considered duringoriginal appellate proceedings?is perverse in law and on the facts in admitting the additionalevidence, a letter dated 14.12.2009 of Mitsubishi heavyindustry limited Japan, during rectification proceedings u/s254(2) which was not produced and considered duringoriginal appellate proceedings? (iii)Whether on the facts and circumstances of the case, the Ld.ITAT has not erred in law in refusing to rectify the mistakewhich it committed in its order in MA No.98/ASR/2010 as perthe mandate of the Hon'ble Supreme Court in the case ofHonda Siel Power Products Vs. CIT reported at 295 ITR 466.ITAT has not erred in law in refusing to rectify the mistakewhich it committed in its order in MA No.98/ASR/2010 as perthe mandate of the Hon'ble Supreme Court in the case ofHonda Siel Power Products Vs. CIT reported at 295 ITR 466.(iv)Whether the Ld. Tribunal has not erred in law in notrectifying its order in MA No.98/ASR/2010 before proceedingto hear the ITA No.345/ASR/2009, 410/ASR/2010,238/ASR/2011, 284/ASR/2012 when it admitted in its orderrectifying its order in MA No.98/ASR/2010 before proceedingto hear the ITA No.345/ASR/2009, 410/ASR/2010,238/ASR/2011, 284/ASR/2012 when it admitted in its order that the Tribunal has committed a typographical mistake bywrongly quoting nine sets of citations relied upon by theassessee without appreciating that the order nine sets ofcitations had duly been considered by the Bench in its order inITA No. 345/ASR/2009 and thus the mistake was too obviousand it was enjoined upon the ITAT to rectify the same with aview to doing away the prejudice thus caused to the interestsof the revenue as per the mandate of the Hon'ble SupremeCourt in Honda Siel Power Products Ltd. CIT (Supra).wrongly quoting nine sets of citations relied upon by theassessee without appreciating that the order nine sets ofcitations had duly been considered by the Bench in its order inITA No. 345/ASR/2009 and thus the mistake was too obviousand it was enjoined upon the ITAT to rectify the same with aview to doing away the prejudice thus caused to the interestsof the revenue as per the mandate of the Hon'ble SupremeCourt in Honda Siel Power Products Ltd. CIT (Supra). (v)Whether the Tribunal has not erred in holding in the lastparagraph of page 8 that the order set of nine judgments reliedon by the assessee during the appeal proceedings had not beenconsidered whereas the operative part of the order clearlyshows that all the judgments were duly considered except onein the case of 138 ITR 338 in the case of CIT Vs. OswalWollen Mills (at S.No.4) of the set of nine citations.paragraph of page 8 that the order set of nine judgments reliedon by the assessee during the appeal proceedings had not beenconsidered whereas the operative part of the order clearlyshows that all the judgments were duly considered except onein the case of 138 ITR 338 in the case of CIT Vs. OswalWollen Mills (at S.No.4) of the set of nine citations. (vi)Whether the Ld. Tribunal has not erred in law in refusing toappreciate the mistake which it committed in recalling theorder in ITA No.345/ASR/2009 on the ground that“arguments of the assessee were not considered in their properperspective” as the same amounted to perversity and did notfell within domain of the provisions of Section 254(2) of theIncome Tax Act, 1961.appreciate the mistake which it committed in recalling theorder in ITA No.345/ASR/2009 on the ground that“arguments of the assessee were not considered in their properperspective” as the same amounted to perversity and did notfell within domain of the provisions of Section 254(2) of theIncome Tax Act, 1961. (vii)Whether the Ld. Tribunal has not erred in refusing to first doaway with the mistake which it committed in MA No.98/ASR/2010 before proceeding to hear the appeals in ITAaway with the mistake which it committed in MA No.98/ASR/2010 before proceeding to hear the appeals in ITA No.345/ASR/2009 and three others. (viii)Whether the Ld. Tribunal has not acted in gross violation of the dictate of the Hon'ble Supreme Court in the case of HondaSiel Power Products Ltd. Vs. CIT (Supra) when it refused torectifying the mistake it committed in its order in MA beforeproceeding to hear the aforementioned appeals.Siel Power Products Ltd. Vs. CIT (Supra) when it refused torectifying the mistake it committed in its order in MA beforeproceeding to hear the aforementioned appeals. (ix)Whether Ld. Tribunal has not erred in law in first refusing torectify the mistake which itself admitted that it has committedand erred in proceeding to hear the appeal while thedepartment has demanded of the Tribunal to first address itselfon the relative merit of its order in MA No.98/ASR/2010without first indicating to the revenue department that the Ld.ITAT Amritsar is deciding the issue on merits of the case.rectify the mistake which itself admitted that it has committedand erred in proceeding to hear the appeal while thedepartment has demanded of the Tribunal to first address itselfon the relative merit of its order in MA No.98/ASR/2010without first indicating to the revenue department that the Ld.ITAT Amritsar is deciding the issue on merits of the case. (ix)Whether Ld. Tribunal has not erred in law in first refusing torectify the mistake which itself admitted that it has committedand erred in proceeding to hear the appeal while thedepartment has demanded of the Tribunal to first address itselfon the relative merit of its order in MA No.98/ASR/2010without first indicating to the revenue department that the Ld.ITAT Amritsar is deciding the issue on merits of the case.rectify the mistake which itself admitted that it has committedand erred in proceeding to hear the appeal while thedepartment has demanded of the Tribunal to first address itselfon the relative merit of its order in MA No.98/ASR/2010without first indicating to the revenue department that the Ld.ITAT Amritsar is deciding the issue on merits of the case. 5.The facts as transformed from the record are that the respondentis a proprietor of M/s Prajna (India) Ltd., Jalandhar and was engaged in thebusiness of manufacture and export of machine parts. The concern is 100%export oriented undertaking. The assessee was carrying business at Noida inspecial economic zone. During the assessment year 2006-07, the assesseefiled income tax return declaring income of `1,07,060/-. The case was takenup in scrutiny. The Assessing Officer noticed that the appellant was engagedin manufacture and export of machine parts to M/s Mitsubishi Corporation,Japan and has claimed exemption of its entire profits of `24,59,300/- underSection 10B of the Act. The appellant before starting M/s. Prajna (India) Ltd.(hereinafter referred as 'new concern') had a partnership firm by the name ofM/s Dynamech. The partnership firm was also engaged in the business ofsupplying machine parts to the same purchaser i.e. M/s Mitsubishi Corporation, Japan. The Assessing Officer observed that the new concernhas been set up after splitting up the old business and in view of clause 2(ii)of Section 10B, the deduction claimed by the assessee under Section 10B wasdisallowed vide order dated 31.12.2008. 6.Being aggrieved of the assessment order, the assesseee filed anappeal before the Commissioner of Income Tax (Appeal) (for short,'CIT(A)'). The appeal was dismissed vide order dated 14.07.2009. Further,the appeal was preferred to Tribunal, same was dismissed vide order dated31.08.2009. A Miscellaneous application was filed by the assessee beforethe Tribunal. The application was allowed vide order dated 04.03.2010. TheTribunal recalled its earlier order and heard the matter afresh. By order dated05.03.2015, the Tribunal allowed the appeal of the assessee. Hence, thepresent appeal has been filed by the revenue. 7.The bone of contention in the present appeal is, whether the newfirm has been formed by splitting business of the earlier partnership of M/sDynamech and hence hit by Section 10B(2) (ii) of the Act? 8.Section 10B(2)(ii) & (iii) is quoted below :- Special provisions in respect of newly establishedhundred per cent export-oriented undertakings.10B(I).XXXXXX (2) This section applies to any undertaking whichfulfills all the following conditions, namely :— (i) XXXXXX(ia) XXXXXX (ii) It is not formed by the splitting up, or thereconstruction, of a business already in existence:Provided that this condition shall not apply in respect of any undertaking which is formed as aresult of the re- establishment, reconstruction orrevival by the assessee of the business of any suchundertaking as is referred to in section 33B, in thecircumstances and within the period specified inthat section; (iii) It is not formed by the transfer to a newbusiness of machinery or plant previously used forany purpose. 8.Section 10B(2)(ii) & (iii) is quoted below :- Special provisions in respect of newly establishedhundred per cent export-oriented undertakings.10B(I).XXXXXX (2) This section applies to any undertaking whichfulfills all the following conditions, namely :— (i) XXXXXX(ia) XXXXXX (ii) It is not formed by the splitting up, or thereconstruction, of a business already in existence:Provided that this condition shall not apply in respect of any undertaking which is formed as aresult of the re- establishment, reconstruction orrevival by the assessee of the business of any suchundertaking as is referred to in section 33B, in thecircumstances and within the period specified inthat section; (iii) It is not formed by the transfer to a newbusiness of machinery or plant previously used forany purpose. 9.Section 10B of the Act is a special provision in respect to newlyestablished 100% export oriented undertakings. As per Section 10B(1) of theAct subject to the provisions of the Section, there would be 100% deductionallowable towards profits and gains as are derived by an export orientedundertaking from the export of articles or things. The exemption would be fora period of ten years consecutively starting from the assessment year relevantto the previous year in which the manufacturing activity begins. Sub Section(2) to Section 10B lays down the conditions which the undertaking has tofulfill for claiming exemption under Section 10B(1) of the Act. 10.The Assessing Officer while disallowing the deduction wasswayed by the facts that both the concerns were supplying material to onepurchaser i.e. Mitsubishi Corporation, Japan; the assessee Rohit Tandon wasproprietor of the new concern and partner in M/s Dynamech. The turnover ofM/s Dynamech had started falling after establishment of the new concern.The source of capital of the new concern was a gift received from the wife ofSh. Rohit Tandon, who is partner in M/s Dynamech and that the bulk of themachinery has been purchased by the assessee towards the end of thefinancial year. 11.The CIT(A) though factually did not agree with some of thefindings recorded by the Assessing Officer but still upheld the disallowanceof claim under Section 10B of the Act. 12.Before the Tribunal, the assessee produced an additionalevidence i.e. a letter dated 14.07.2009 from M/s Mitsubishi. The applicationwas allowed and the additional evidence was taken on record. It wascontended by the assessee that the new concern was set up with advancemodern machinery at a new place to meet fresh requirements of M/sMitsubishi, Japan. It was also argued that the new concern produced 10-12new parts upto assessment year 2007-08 and by assessment year 2009-10,236 new parts were produced. It was contended that the capital of thepartnership firm was not transferred to the new concern but the profit earnedby the partnership firm was used for establishing the new firm. The Tribunalreversed the findings recorded by the Assessing Officer and allowed theappeal. 13.Learned counsel for the revenue argued that the Tribunal erred inrecalling its earlier order and allowing the appeal of the assessee. Thegrievance raised was that the Tribunal erred in holding that there was notransfer of capital from the existing business and it was not a case of splittingup of the business. 14.Learned counsel for the assessee submitted that the new unit andthe partnership firm were producing different products. There was noquestion of transfer of business. It was argued that the machines importedwere received earlier but the agent issued the bills later. 15.Heard learned counsel for the parties. 16.For deciding the issue involved, facts like, the products 13.Learned counsel for the revenue argued that the Tribunal erred inrecalling its earlier order and allowing the appeal of the assessee. Thegrievance raised was that the Tribunal erred in holding that there was notransfer of capital from the existing business and it was not a case of splittingup of the business. 14.Learned counsel for the assessee submitted that the new unit andthe partnership firm were producing different products. There was noquestion of transfer of business. It was argued that the machines importedwere received earlier but the agent issued the bills later. 15.Heard learned counsel for the parties. 16.For deciding the issue involved, facts like, the products manufactured by two units are separate; any existing contracts of M/sDynamech have been transferred to new firm; the new concern has been setup with advance and modern machinery to meet the fresh requirements ofM/s Mitsubishi, Japan; there was any transfer of capital from the firm to thenew concern or the capital was actually from the profit earned by thepartnership firm needs to be taken into consideration. Apart from the saidissues, the other issues raised by the Assessing Officer and the assessee arealso required to be pointedly dealt with. It is clarified that facts mentionedherein are only illustrations. 17.It would thus be appropriate that without expressing any opinionon the merits of the case, the matter is remanded back to the AssessingOfficer to decide the matter afresh after considering the material produced bythe assessee and the contentions raised and by discussing the same in detailby passing a speaking order in accordance with law. Ordered accordingly. 18.The appeals are disposed of in the manner indicated above. (AJAY KUMAR MITTAL) JUDGE September 18, 2018anju (AVNEESH JHINGAN) JUDGE Whether speaking/reasoned: Yes/NoWhether reportable :Yes/No