Gujarat H.C : The assessee company was not entitled to deduction under s. 80-I for lack of satisfaction of the condition laid down in cl. (ii) of sub-s. (2) of s. 80-I of the IT Act

High Court Of Gujarat

Himson Fadis Machinery (P) Ltd. vs. CIT

Section 80-I

Asst. Year 1987-88, 1988-89

D.A. Mehta & Z.K. Saiyed, JJ.

IT Ref. No. 17 of 1998

15th April, 2008

Counsel Appeared :

R.K. Patel, for the Applicant : Manish R. Bhatt, for the Respondent

JUDGMENT

D.A. Mehta, J. :

The Tribunal, Ahmedabad Bench ‘A’ has referred the following two questions under s. 256(1) of the IT Act, 1961 (the Act) at the instance of assessee applicant :

“1. Whether on the facts and circumstances of the case the Tribunal was right in confirming the orders of the CIT made under s. 263 holding that the assessee company was not entitled to deduction under s. 80-I for lack of satisfaction of the condition laid down in cl. (ii) of sub-s. (2) of s. 80-I of the IT Act ?

2. Whether on the facts and circumstances of the case the Tribunal was right in law in holding that the CIT(A) rightly refused to entertain the appeal against the order of the AO giving effect to the order of the CIT under s. 263 for the asst. yr. 1987-88 ?”

The assessment years in question are asst. yrs. 1987-88 and 1988-89 and the relevant accounting periods are calendar years ended on 31st Dec., 1986 and 31st Dec., 1987. The assessee, a private limited company, came into existence during the accounting year ended on 31st Dec., 1986. The assessee company took on lease machineries from one other private limited company, viz. Himson Engineering (P) Ltd. For asst. yr. 1987-88 hire charges to the tune of Rs. 80,000 were paid, and similarly Rs. 1,20,000 as hire charges were paid for asst. yr. 1988-89. The machineries, so taken on lease, were used by the assessee for manufacturing machine parts and also used for job work. Such manufacturing activity commenced from April, 1986. For the two years under consideration the assessee claimed deduction under s. 80-I of the Act at Rs. 27,840 and Rs. 61,440 respectively. The said claim was allowed by the AO.

The CIT initiated proceedings under s. 263 of the Act and issued notice on the following ground : “Since the manufacturing work was done by you on the machineries hired by you and you have not got your own machineries you are not entitled for deduction under s. 80-I of the Act. The deduction was therefore wrongly allowed to you under s. 80-I of the Act”.

The reply furnished by the assessee was not found to be satisfactory by the CIT and he came to the conclusion that the conditions laid down in sub-s. (2) of s. 80-I of the Act were not fulfilled and therefore the assessee was not entitled to relief under s. 80-I of the Act. The CIT accordingly directed the AO to withdraw the relief granted under s. 80-I of the Act for asst. yr. 1987-88, while assessment for asst. yr. 1988-89 was set aside to make a fresh assessment considering the claim of the assessee on merits after making inquiries about the admissibility of the claim under s. 80-I of the Act.

In relation to asst. yr. 1987-88, the AO withdrew deduction under s. 80-I of the Act against which the assessee preferred appeal before CIT(A). The first appellate authority did not entertain the appeal against the order giving effect to the order of CIT as according to CIT(A) he had no jurisdiction to admit the appeal against an order made by CIT under s. 263 of the Act. The said order was challenged by the assessee before the Tribunal.

Insofar as the orders made by CIT under s. 263 of the Act are concerned the assessee challenged the same before the Tribunal but did not succeed. The assessee had also preferred an appeal before the Tribunal against the order of CIT(A) refusing to entertain the appeal but the said appeal was dismissed by the Tribunal as the Tribunal had upheld the orders made by CIT for two years.

The learned advocate for the applicant assessee assailed the impugned order of the Tribunal by submitting that both CIT and the Tribunal had proceeded on an erroneous footing by reading the requirement of ownership of the machineries as being a prerequisite for allowing relief under s. 80I of the Act. It was further submitted that even if the word “transfer” would include transfer by lease the other condition had also to be considered and the object of the provision borne in mind before making the disallowance. That in fact the impugned order of Tribunal did not correctly record the facts and hence order dt. 31st Dec., 1996 was sought to be rectified by filing miscellaneous application under s. 254(2) of the Act. It was further submitted that in subsequent assessment years viz. asst. yrs.
1990-91 to 1993-94 and the set aside assessment for asst. yr. 1988-89, the assessee had produced necessary evidence before CIT(A) and had succeeded. Referring to the consolidated order dt. 16th July, 1994 of CIT(A) it was submitted that despite the said details having been produced before the AO the same were not considered by the AO but considered favourably by CIT(A) who held that the claim of the assessee that new machineries were given on hire was correct.

On behalf of the respondent Revenue reliance was placed on the findings recorded by the Tribunal to submit that no interference was warranted. In order dt. 31st Dec., 1996 the Tribunal has recorded thus : “There is, however, no material available on record to show as to when the said industrial unit was set up by Himson Engineering (P) Ltd. and for how long the said company carried on the business of manufacturing of machinery parts in the said industrial unit was neither set up by the assessee company nor it was new on its taking over on lease. Having regard to these facts, we find that condition at serial No. (ii) above is not satisfied in the hands of assessee company as this condition provides that the industrial undertaking is not formed (by) transfer to a new business of machinery or plant previously used for any purpose. The machinery and plant installed in the unit were earlier used by Himson Engineering (P) Ltd. and its taking on lease amounts to transfer from Himson Engineering (P) Ltd. to the assessee company.”

The miscellaneous application filed by the assessee seeking suitable modification in the order of the Tribunal came to be rejected by the Tribunal vide order dt. 28th Oct., 1997 refusing to modify the earlier order dt. 31st Dec., 1996. The reliance on the proceedings of subsequent years by the assessee also cannot carry the case of the assessee any further for the simple reason that against the order made by CIT(A), the Revenue had carried the matter in appeals before the Tribunal and the Tribunal has vide order dt. 3rd July, 2002 recorded : “It is not disputed that the facts for the assessment years under appeal before us are exactly identical.”

9. The position in law is therefore that the Tribunal has in the first instance held that there is no material available on record to show as to when the machineries belonging to Himson Engineering (P) Ltd., which were leased out to the assessee company, were used by the said lessor company; that there was no material to show that the machineries hired by the assessee company was a new industrial unit set up by the assessee company, nor was there any material to show that such leased out machineries were new at the time of taking on lease. The Tribunal has therefore found that condition No. (ii) under sub-s. (2) of s. 80-I of the Act was not satisfied. In fact the Tribunal has categorically recorded that the machineries and plant installed in the unit of the assessee had earlier been used by Himson Engineering (P) Ltd. the lessor company, and the lease of the said machineries by Himson Engineering (P) Ltd., amounts to transfer from Himson Engineering (P) Ltd. to the assessee company. Though CIT(A) in his order for subsequent years has recorded that as per list furnished by the assessee the machineries and plant were new in Departmental appeals the Tribunal has recorded that it is not disputed that the facts for the assessment years under appeal are exactly identical to the facts recorded for asst. yrs. 1987-88 and 1988-89. The Tribunal has therefore refused to reconsider the earlier decision of the Tribunal on the same set of facts.

In this state of affairs and the findings recorded by the Tribunal even if, for the sake of argument one accepts the contention that the ownership of an industrial undertaking may not be necessary for claiming relief under s. 80-I of the Act, when factually it is found by the Tribunal that the machineries and plant used by the assessee were not new there is no question of going behind the said finding. Hence, it is not necessary to enter into the larger controversy as regards whether ownership of plant and machineries is, or is not, a necessary requisite for claiming relief under s. 80-I of the Act.

In light of the findings recorded by the Tribunal, it is not possible to record any other finding contrary to findings recorded by the Tribunal. The Tribunal was right in confirming the order made by CIT under s. 263 of the Act holding that the assessee company was not entitled to relief under s. 80-I of the Act. Accordingly question No. 1 is answered in the affirmative i.e. in favour of the Revenue and against the assessee.

In light of the answer to question No. 1 it is not necessary to record any answer so far as question No. 2 is concerned.

The reference stands disposed of accordingly. There shall be no order as to costs.

[Citation : 327 ITR 61]