Judgment:
These two appeals are preferred by the assessee against the order of the learned first appellate authority dated 30-8-2002 on the following grounds (i) That the order of the CIT(A) is opposed to law and facts of the case.
(ii) That the appellant had not taken any ground regarding the validity of the proceedings under section 147 and the issue of notice under section 148. They were not urged before the first appellate authority and therefore seeks permission to adopt these grounds and submit that the necessary conditions for the issue of the notice under section 148 and assumption of jurisdiction have not been fulfilled.
(iii) That the denial of relief by the CIT(A) under section 80-IA is improper and illegal.
(iv) That it should have appreciated that as the undertaking commenced at the new premises is a new industrial undertaking manufacturing new articles. Even if articles similar to those which were being manufactured at the old premises are also, manufactured relief under section 80-IA cannot be denied.
(v) That having regard to the establishment of a new undertaking, manufacturing activity and the range of products manufactured the assessee satisfies the provisions to earn relief under section 80-IA and such relief should have been granted.
(vi) There was no transfer of the business as such from old premises to the new premises what was commenced in the new premises is a new undertaking.
(vii) That the appellant craves for leave to add to, delete from or amend the grounds of appeal.
The assessee filed its return on 31-10-1995 on a total income of Rs. 7,03,758, which was processed under section 143(1)(a) of the Act on 28-12-1995 accepting the same. Subsequently, a notice under section 148 was issued on 11-2-1998, to which the assessee chose to treat the return already filed as the return in lieu of the notice issued under section 148 as per his letter dated 17-2-1998. The assessee commenced its manufacturing activity in the year relevant to the assessment year 1992-93 and was found to be eligible for deduction under section 80-IA upto the assessment year 1991-92. During the financial year 1991-92, the factory premises of the assessee was shifted from No. 13, 4th Cross, East Street, Agrahara Dasarahalli, Bangalore to No. C-35/1, 3rd Main, Industrial Estate, Rajajinagar, Bangalore. It was found by the assessing officer that the assessee carried out executing orders for Mico and other Companies in accordance with the designs and specifications of these companies and the business activity remain the same though there was additions of new plant and machinery and also variation in the scale of the business activity. The assessing officer hold that having shifted the business premises and by using new machinery in addition to the old, no new industrial undertaking has emerged and thus the assessee is not entitled to the benefit of deduction under section 80-IA.Likewise, for the assessment year 1997-98, the assessee declared an income of Rs. 7,90,438 after claiming deduction under section 80-I of Rs. 2,66,480 on 3 1- 10- 1997, which was processed under section 143(1)(a) on 26-3-1998. As per the assessing officer, the assessee had not commenced a new industrial undertaking manufacturing new articles.
Therefore, keeping in view the action under section 263, disallowed the claim of deduction under section 80-IA. The assessment for the assessment years 1995-96 and 1997-98 were reopened by issue of notice under section 148 and the assessment for the assessment year 1995-96 was completed by withdrawing the claimed deduction. The assessee claimed that the assessee commenced new industrial undertaking of manufacturing new articles, so is entitled for deduction. The deduction under section 80-IA was allowed upto assessment year 1991-92 on the manufacturing activities ce rried on by the assessee. As the assessee shifted its factory, the assessing officer did not allow the deduction under section 80-IA. The assessee unsuccessfully carried the same in appeal before the first appellate authority. Now the assessee is in further appeal before the Tribunal.
At the time of hearing we have heard Ms. Nithya, learned Advocate for the assessee and Shri Manjunath, learned representative for the revenue. The gist of argument on behalf of the assessee is that as far as the issue of reopening is concerned, it is urged for the first time before the Tribunal and relied upon the decision of the Bangalore Bench of the Tribunal in the case of M. Srinivas v. ITO (IT Appeal No. 1200 (Bang.) of 1993, dated 23-7-1996). The learned Advocate further contended that the assessee is entitled to deduction under section 80-IA and drawn our attention to the written submissions and also the order of the Tribunal, which was opposed by the learned Departmental Representative by contending that the order of the Tribunal cannot be relied upon to the present facts as far as section 148 is concerned. In nutshell, the learned Departmental Representative supported the orders of the authorities below. We have considered the rival submissions.
Ground Nos. 1 and 7 are general in nature, which requires no deliberation.
Basically two issues are emerging out of the grounds of appeal, one is on reopening by issue of notice under section 148 and the next one pertains to denial of relief under section 80-IA of the Act. We have also gone through the recorded reasons, a copy of which is available at pages 25 and 26 of the paper book of the assessee. The reasons for reopening of assessment (assessment years 1995-96 and 1997-98) has been mentioned as under :- "Please see Ap. objections filed on the folder of 1996-97. For the reasons stated therein the assessee is not entitled for deduction under section 80-IA (Not under section 80-I).
Allowance of deduction under section 80-I as claimed by the assessee for which the assessec is not entitled has resulted in short computation of income and short payment of tax within the meaning of section 147 of Income Tax Act, 1961. Put up for order." "Please see CIT's order under section 263 for the assessment year 1996-97 which the CIT has directed to withdraw the deduction under section 80-I.The deduction under section 80-I claimed by the assessee is erroneous is not entitled to the claim. This has resulted in short computation of income and short levy of tax within the meaning of section 147 of the Income Tax Act, 1961." From the above recorded reasons, we have found that there is no recording of satisfaction by the assessing officer as he has not mentioned as to how the allowance of deduction under section 80-IA resulted in short computation of income for the assessment year 1997-98. This is not the opinion of the assessing officer, rather it is based on the order of the Commissioner passed under section 263 of the Act.
For the assessment year 1996-97 vide its order dated 27-3-1998, the Commissioner has ordered withdrawal of relief granted under section 80-IA of the Act whereas the Tribunal reversed the order of the Commissioner and restored the relief earlier granted under section 80-IA of the Act vide its order dated 22-10-2003, wherein one of us (J.M.) is the signatory to the order. The learned Departmental Representative, during argument, contended that the issue of notice under section 148 has been raised by the assessee for the first time before the Tribunal, which should not be allowed. We are of the considered opinion that the issuance of notice under section 148 which goes to the root of the jurisdiction, such matter can be raised even for the first time, before the Tribunal. While coming to this conclusion, we are fortified by the decision of the Hon'ble Apex Court pronounced in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC) wherein on the issue of power of Tribunal, the Hon'ble Apex Court hold that Tribunal has the discretion to allow or not to allow a new ground to be raised for the first time, when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.
Similar view were expressed by the Hon'ble High Court of Mysore in the case of Gundathur Thimmappa & Sons v. CIT (1968) 70 ITR 70, 73 wherein the Hon'ble court hold that the Appellate Tribunal, like any, other appellate authority, had the discretion to permit the point of law to be raised for the first time in appeal and because the question went to the root of the case, their refusal to entertain the point must be regarded as an improper exercise of discretion by them and, therefore, erroneous in law. In view of these facts, we are of the considered opinion that the Tribunal has the powers/discretion to allow in such a situation even for the first time any question raised before it. At the same time, it is also an established position that the assessing officer cannot travel beyond the recorded reasons for justifying the re-assessment. We are supported by the judicial pronouncements such as Jamna Lal Kabra v. ITO (1968) 69 ITR 461 (All.) on the issue of reasons to be recorded before issuing notice.
The Karnataka High Court in the case of Vijayalakshmi Oil Industries v.ITO (1985) 155 ITR 748 (Kar) wherein the Hon'ble court hold that notes prepared by Income Tax Officer do not amount to recording of reasons, so the reassessment notice is invalid. Similar views were expressed by the Hon'ble High Court of Calcutta in the case of Equitable Investment Co. (P) Ltd v. ITO (1988) 174 ITR 714 (Cal). We are also getting support from the High Court of Bombay in the case of ND. Bhat, Inspecting Assistant Commissioner v. I.B.M. World Trade Corpn. (1995) 216 ITR 811 (Bom.) wherein it was held that "it is well-settled that the reasons for reopening are required to be recorded by the assessing authority before issuing any notice under section 148 by virtue of the provisions of section 148(2) at the relevant time. Only the reasons so recorded can be looked at for sustaining or setting aside a notice issued under section 148 .......
The Hon'ble High Court of Andhra Pradesh in the case of S.Sreeramachandra Murthy v. Dy. CIT (2000) 243 ITR 427 (AP) hold that court cannot go beyond recorded reasons.
It In the present case before us we have found that the reopening is exclusively on the basis of the order under section 263 passed by the learned Commissioner. So, in our view, the very foundation (assessment year 1997-98) is removed. For the assessment year 1995-96, where the reasons were recorded prior to the order under section 263, the assessing officer has pointed out certain objections filed for the assessment year 1996-97. Such objections by themselves cannot be a ground for reopening whereas any finding on those objections rejecting the same by an authority is not there. The assessing officer merely cannot depend upon such objections. The assessing officer cannot come to a conclusion that the income has escaped assessment. In view of these facts and judicial pronounce in ents, we are of the view that the reopening itself is not proper so on this ground also, the appeals of the assessee deserves to be allowed.
On perusal of reasons recorded, it is seen that the assessing officer has mentioned that section 80-I in its reasons whereas the claim of the assessee is under section 80-IA of the Act. On this point also, if it is read as section 80-IA, still on the basis of the recorded reasons, it is not proper. The reopening cannot be justified. The assessing officer has merely put reliance on the order under section 263 and there is not even a mention that there is escapement of income. There is also no reference to the fact as to how the original returns were disposed off, whether it had resulted in order under section 143(3) or under section 143(1)(a) or 143(1) of the Act. There is also no indication in the recorded reasons as to which of the clauses of the explanation are applicable and the three clauses (a), (b) and (c) therein apply in different circumstances with reference to the disposal of the original returns. In our considered opinion, recording under section 148(2) does not meet the requirements of law and on this ground itself the same deserves to be cancelled.
Even on merit also, on the ground of relief under section 80-IA, there is a fact that the assessee undertook commencing the business at new premises by manufacturing new articles. The assessing officer itself has found the assessee to be eligible for deduction under section 80-I upto the assessment year 1991-92. The assessing officer in its order has pointed out that new plant and machinery was added and there is also variation in the scale of the business activity. There is no dispute to the fact that the assessee shifted the business premises by using the new machinery and substantial amount was invested by the assessee by introducing new machinery worth Rs. 44,89,892 and started catering to the needs of customers like Kunal Engineering Co. Ltd., S.K.F. etc. There is also no dispute to the fact that new articles were manufactured at the new premises and even if we accept the contention of the revenue that similar articles were produced at the old premises, we arc of the opinion that the relief under section 80-IA cannot be denied, especially when this fact is not disputed that new articles were produced at the new premises at a large scale to meet the needs and demands of the customers. We do not agree with the observation of the authorities below that the assessee transferred the old business to the new place. The Tribunal has already considered similar issue in ITA No. 465/8ang/1998 (assessment year 1996-97), wherein one of us (J.M.) is the signatory to the order, in which it has been specifically mentioned that the assessee acquired new machinery at the cost of Rs. 44,89,892 and installed the same at new premises and the WD value of the old machinery was merely Rs. 1,43,557, which was shifted from old premises to the new premises. From this fact it cannot be said that the old machinery was shifted to the new premises. It will be relevant to mention the decision of the Hon'ble Apex Court in Textile Machinery Corpn. Ltd. v. CIT (1977) 107 ITR 195, CIT v. Indian Alluminium Co.
Ltd. (1977) 108 ITR 367 (SC) and Bajai Tempo Ltd. v. CIT (1992) 196 ITR 1881 (SC) wherein the principles enunciated therein would apply to the facts of the instant case. The learned Departmental Representative however pointed out that the claim of section 15C of the Act, 1922 was materially different from that of section 80-IA and, therefore the decision of the Apex Court rendered in Textile Machinery Corpn. Ltd. (supra) cannot be invoked here. The Hon'ble Apex Court in the case of Textile Machinery Corpn. Ltd. (supra) dealt with the dispute pertaining to the allowability or otherwise of the benefit of section 15C of the old Act. The Hon'ble Apex Court was dealing with the scope and ambit of the expression therein, i.e., reconstruction of the business already in existence. The assessee therein, a heavy engineering concern manufacturing boilers, machinery parts, wagons etc., set up two new units, a. steel foundry division and a jute mill division. The issue was as to whether the two industrial undertakings, namely, the steel foundry division and the jute mill division was formed as a result of the reconstruction of the business already in existence or not. In this background, the Hon'ble Apex Court opined certain tests to ascertain as to in what circumstances can a new creation in business can be considered as some kind of expansion and advancement or not.
Accordingly, as per the Apex Court the true test is not to see as to whether or not the new unit connotes the expansion of the new business of the assessee but in distinction, it should be tested as to whether the new unit is of the same line and an identifiable undertaking separate and distinct from the erstwhile business. According to the Apex Court, apart from the other tests, in order to hold that the new undertaking is said to emerge there must be an emergence of a physically new separate unit which is capable to exist on its own as a viable unit. The following observation of the Hon'ble Apex Court is worthy of notice : "A new activity launched by the assessee by establishing new plants and machinery by investing substantial funds may produce the same commodities of the old business or it may produce some other distinct marketable products, even commodities which may feed the old business.
These products may be consumed by the assessee in his old business or may be sold in the open market. One thing is certain that the new undertaking must be an integrated unit by itself wherein articles are produced such a new industrially recognisable unit of an assessee cannot be said to be reconstruction of his old business since there is no transfer of any assets of the old business to the new undertaking which takes place when there is reconstruction of the old business....' (p. 196) A useful reference can be made to the decision in the case of Bajaj Tempo Ltd. (supra). After holding that a provision in a taxing statute granting incentives for promoting growth and development should be construed liberally, the Apex Court further opined that the restriction imposed in law in respect of the same should be construed so as to advance the objective of the provision and not to frustrate it. The Hon'ble Apex Court was again dealing with section 15C of the erstwhile Income Tax Act, 1922 and hold that the provision was intended only to those undertakings, which were new in form and substance and that it should not be formed by splitting up or reconstruction of an existing business or transfer to the undertaking of plant used in any previous business. The intention was not to deny benefit to genuine new industrial undertakings but to control the mischief which might otherwise take place. From the facts in hand before us, there is a clear indication that the assessee started manufacturing new components for which purpose it installed new machinery costing Rs. 44,89,892 at the new premises. A fresh licence was applied for and obtained. The old machinery was with WDV of Rs. 1,45,557 only which was transferred which constituted only 4% of the value of the new machinery. In our considered opinion, the finding of the authorities below that it is merely a case of shifting of premises from the old to the new, is not founded on facts and so is not justified. In view of these facts and judicial pronouncements, on merit also, the assessee deserves the benefit of relief under section 80-IA of the Act. Therefore, even on this count also, the appeal of the assessee deserves to be eligible for claim of relief under section 80-IA of the Act.